Grounds for cautious economic optimism

IT IS too early to be get out the bunting, set off fireworks or declare we are out of the economic woods but it can only be good news that the Scottish economy is closing the gap on the rest of the UK in terms of business activity.

According to the respected purchase manager index (PMI) report published by Bank of Scotland today the Scottish private sector economy was showing signs of what can best be called a subdued recovery, but it must be significant that activity levels were up for the 13th successive month in July.

There is, it is true, a downside, with weak growth in the service sector, which makes up a large part of the Scottish economy. There was a worrying decline in activity and employment levels dropped slightly, offsetting robust and encouraging growth in the manufacturing sector.

Although growth was weaker than across the United Kingdom as a whole, the latest figures suggest that the disparity which had opened up between Scotland and the UK is narrowing, though we would caution that one month's figures do not an economic phenomenon make.

Overall, however, the news from the PMI survey, which we report on our business pages today, is another small but positive sign the Scottish private sector economy has weathered the worse of the downturn and is in a period of consistent recovery.

What must now happen is the Scottish and UK governments press ahead with the necessary, though painful, cuts in public expenditure expeditiously. Although these cuts will have an inevitable effect on the private sector, which does business with the state, they are part of the process which will - eventually - lead Scotland and the UK back to prosperity.