Bank surge boosts Scots growth

SCOTLAND'S economy grew 2.2 per cent last year, with the growth rate in the fourth quarter overtaking the figure for the UK overall. The annual growth rate compares with 2.9 per cent for the UK. In the final quarter, Scottish GDP rose by 0.9 per cent, against 0.6 per cent for the UK.

But Scotland's figures for the service sector in Q4 were boosted by a dramatic and unexplained surge of 9.3 per cent in banking – the highest rate of quarterly growth ever reported despite the onset of the credit crunch in financial markets.

Production-sector output fell 0.2 per cent on the quarter, with electricity, gas and water supply down 7.8 per cent and mining and quarrying down 4.3 per cent in Q4 compared with Q3.

Manufacturing grew by 1.5 per cent in the fourth quarter (UK: nil) while services grew by 1.3 per cent (UK: 0.7 per cent).

The surge in banking performance mystified commentators yesterday as the period was marked by the onset of the liquidity squeeze in wholesale money markets and tumbling bank shares. The latest figures show a sharp increase of 7 per cent on the level 12 months ago as well as a 9.3 per cent leap on the quarter.

"The 9.3 per cent figure does rather jump out," said a spokesman for the Scottish Government yesterday. "But many Scottish financial institutions still reported strong profits for 2007, therefore it is perhaps not surprising that the banking sector in Scotland grew by 7 per cent over the year. The rise in the fourth quarter brought the sector back to its trend growth rate following the decline in output in Q2 and Q3 of 2007."

Hotels and catering grew by just 2.3 per cent over the year compared with 3.9 per cent for the UK, suggesting that Scottish tourism is lagging the UK. Best performing sector was communications (postal, courier and telecommunications) with a 15 per cent gain on the year.

John Swinnney, the Cabinet Secretary for Finance, hailed the figures as "a welcome and positive piece of news" but added that Scotland is not isolated from global conditions. "It brings into sharp relief the urgent need to make Scotland a more competitive environment to put us on the course for long-term success. and achieve our target of matching the UK growth rate."

The Centre for Public Policy for Regions noted that the public sector grew by only half a percentage point last year – "poor for a sector that accounts for almost a quarter of Scottish economic activity". It said the latest figures "continue to exhibit some worrying and often unexplained trends. In a number of sectors it is difficult to fathom the economic explanation for past and current movements".