Beleaguered finance sector picks up again amid fragile recovery

SCOTLAND'S struggling financial sector is showing some signs of recovery, a new report has revealed.

A survey of more than 600 businesses north of the Border suggested business activity across all sectors remained "broadly static" during October and that the rate of new business had declined for the first time in nine months.

However, the latest Bank of Scotland purchasing managers' index (PMI) report said firms were continuing to add to their workforces.

Donald MacRae, chief economist at Bank of Scotland, said: "The expansion in business and financial services, the strongest for five months, was very welcome.

"Scottish firms continued to add to their workforces during October, although the rate of job creation remained weak.

"The Scottish economy has slowed but has not gone into reverse."

The report showed activity in the services sector fell for the second month in a row - this was attributed to a decline in travel, tourism and leisure.

A minor rise in manufacturing output was noted after a slight fall in September's report.

The marginal decline in the Scottish economy contrasts with the trend seen across the UK as a whole, where a mild acceleration of growth was recorded.

The firms who responded to the survey said they had decreased their backlogs of work in October for the 38th straight month.

Cost inflation was at its highest in five months, with companies blaming rising raw material and fuel costs for the hike, while the increase in the national minimum wage pushed up staffing costs.

The poor results, along with rising unemployment, have put the focus on the Scottish Government's failure to get a growth policy in place, as well as the effect of coalition cuts to a larger- than-average public sector base in Scotland.

But the Scottish Government insisted last night that there were positive signs of recovery.

A spokesman for finance secretary John Swinney said: "The latest Scottish GDP figures, showing growth of 1.3 per cent in the second quarter of this year, was not only higher than the UK as a whole, but was also above the G7 average of 0.7 per cent, the OECD (Organisation for Economic Co-operation and Development] average of 0.9 per cent, and the EU average of 1 per cent.

"However, while there are positive indications, it is clear that Scotland's recovery remains fragile - as the PMI figures suggest - which is why UK government cuts that are too fast and too deep is entirely the wrong approach."

He added: "We are building economic recovery in Scotland, but the UK government's damaging decision to slash our capital budget by a quarter next year - and by more than a third over the spending review period - threatens to take a wrecking ball to recovery.Westminster's deep cuts to capital investment in particular make it absolutely essential that the Scottish Government secures real economic and financial powers."

However, opponents say the Scottish Government must provide better support for small and medium-sized companies.

Liberal Democrat finance spokesman Jeremy Purvis MSP said: "There is growing need to address the difficulties small and medium-sized businesses have in accessing appropriate support.

"I believe that my proposal to end Scottish Enterprise and to establish regional development banks is the way forward."