Leader: Slowing recovery and slower jobs market causes for concern

CHILL is setting in across Scotland's labour market, and it shows every sign of getting chillier. After figures last week showing a further rise in unemployment, the latest Bank of Scotland Report on Jobs will add to concerns.

It shows that while the supply of temporary jobs continues to rise, the pace of increase is weakening. More worrying, the demand for permanent jobs declined in August for the first time in nine months.

At the same time the numbers of those seeking permanent work registered a solid rise. In the summation of Bank of Scotland chief economist Donald MacRae, labour market conditions remain "challenging, and worse than the UK as the market deteriorated in August".

There are encouraging points which should not be overlooked. There was the announcement last week by Spanish energy giant Iberdrola of a 3 billion investment in Scotland in renewable energy projects. Barclays Bank is planning a major jobs expansion in Glasgow.

Last week's figures showed a rise in the numbers of people in employment in Scotland as a number of those not on the official unemployment register found work, though most of the new jobs were part-time.

However, there is growing evidence that the economic growth pace across the UK is slowing. Forecasts for the final quarter of this year and for 2011 are being downgraded. Next year will also see a rise in VAT to 20 per cent and the first significant impact of the government's massive spending reduction programme that will see redundancy programmes across the public sector.

There is thus every prospect that unemployment across the UK will climb towards nine per cent by the final quarter of next year and with a real danger of the corresponding figure for Scotland rising to 10 per cent.

The policy cupboard is not yet bare. While the consensus of independent forecasts does not suggest a full relapse into double dip recession, the Bank of England stands ready to resort to further monetary expansion via Quantitative Easing should that risk increase in the coming months. This should help boost the resources available to banks to step up business lending. Next year will also see the start of business tax reductions. And interest rates are set to remain at their ultra low level of 0.5 per cent for the foreseeable future.

Here in Scotland we need to ensure that the advice and assistance available for small and medium sized businesses through the local authority Business Gateway schemes are being targeted with maximum effect, and to ease where possible planning and regulatory constraints which all too often hinder business development and stifle entrepreneurism.

But the central problem is to ensure a recovery in bank lending to the business sector. No sustained recovery in job-creating private sector investment and expansion is likely until the flow of finance to business markedly improves. In this both banks and governments have a responsibility.