Manufacturing up, employment up, services up: Scotland leads UK

SCOTLAND'S private sector is leading the UK out of recession, according to a new report which shows a marked growth in manufacturing.

• Professor David Bell: 'Growing grounds for optimism'

The Purchasing Managers' Index (PMI) monthly report also showed an improvement for services in August, although it was more modest, leading to greater demand for goods from other companies and boosting the economy as a whole.

Unlike the rest of the UK, Scotland also showed growth in employment - it has gone up in eight of the last 11 months.

The report, compiled for the Bank of Scotland from a survey of 600 businesses, is good news for Scottish companies as the country continues its recovery from recession.

However, experts remain cautious about the long-term prospects, especially with public sector cuts ahead.

Economist Professor David Bell, adviser to Holyrood's finance committee, said: "I would like to think there are growing grounds for optimism - manufacturing is doing reasonably well at a Scottish and UK level.

"But these are one month's figures and I would like to see a longer trend. The labour market has been weaker in Scotland in the last little while."

He added: "A fairly considerable amount of demand will be taken out of the economy after the (public-sector] cuts. Firms not dealing with the public sector won't be affected, but those with sales to the public sector will be concerned."

Scotland's PMI index of 53 compares with 52.3 for the UK as a whole in August. The "no change" mark is 50.

Iain McMillan, director of CBI Scotland, said the figures reflected the opinions of companies canvassed by his organisation.

He added: "The PMI index is better news and is consistent with the picture coming from our quarterly industrial trend.

"We do, however, need to be cautious. Construction and housebuilding are still performing well below satisfactory levels. And the public sector's contribution to the economy is about to be hit quite hard, so Scotland is not out of the woods yet.

"We are not expecting a double dip recession but we do think it will be a bumpy road into 2011, when there may be a stronger recovery."

However, the PMI index and the CBI research contrast with a report by business services firm BDO.

Its optimism index, which is also based on a survey of businesses, fell to 93.1 in August, the lowest it had been since the deepest part of the recession, between November 2008 and July 2009. It suggests the country is facing a double dip.

Despite this, activity levels across the Scottish economy have risen in each of the past 14 months, with the rate of expansion broadly unchanged since May.Respondents to the Bank of Scotland report attributed the growth to rising numbers of new businesses.

Donald MacRae, chief economist at Bank of Scotland, said: "Scotland's recovery from recession was maintained in August with activity rising in both manufacturing and services.

"The recovery is more robust in manufacturing. However, new orders growth in both sectors remains weak and rising costs continue to exert pressure on Scottish business. Travel, tourism and leisure showed the strongest performance in the service sector."