SCOTLAND'S manufacturing activity bounced back in the first quarter but its dominant service sector remained in grim shape, a key survey reveals today.

The survey, from the British Chambers of Commerce, raises questions over the state of the overall Scottish economy in the opening three months of 2012, given services is a much larger sector than manufacturing.

And, although Scottish manufacturers' overall domestic and export orders bounced back strongly in the first quarter from falls in the preceding three months, this failed to translate into meaningful job creation.

Meanwhile, Scottish service companies continued to cut their workforces sharply, as their sales and forward orders tumbled further.

The British Chambers survey signals the services sector is in much worse shape in Scotland than in any other part of the UK.

Liz Cameron, chief executive of Scottish Chambers of Commerce, believes the poor services showing reflects the woes of retailers which are being hit by falling household disposable incomes.

She said: "The good news for the Scottish economy is that our manufacturing sector appears to be bouncing back strongly, following a difficult period towards the end of 2011 where exports clearly suffered possibly due to uncertainty in the eurozone area, which is home to many of our main export markets.

"The service sector appears significantly less buoyant and this is undoubtedly influenced by the difficulties being experienced by the retail sector, where falling levels of consumer disposable incomes are having a major impact on sales."

Strathclyde University's Fraser of Allander Institute recently cut its forecast of Scottish gross domestic product growth in 2012 from 0.9% to 0.4%.

Ms Cameron said: "With Scottish GDP growth this year having been revised down to just 0.4% and unemployment expected to rise further due to job losses in the public sector, it is important that we play to our strengths."

She called on the Scottish Government to reduce the scale of the inflation-related increase in business rate bills from the 5.6% rise which has been implemented from April 1.

She said: "We have been actively meeting with the Scottish Government to see what support they can, in fact, give Scottish business.

"One possibility would be the reduction of the 5.6% rise in business rates. That is something that is tangible, that you could actually change within the current powers. Obviously, that (5.6%) was based on the rate of inflation at that point in time (the increase was set). We know that has come down. There is still room for the Scottish Government to manoeuvre around that."

Based on its overall findings, British Chambers is forecasting UK growth of 0.3% in the first quarter. This would mean the UK economy, which contracted by 0.3% in the fourth quarter of last year, would have flatlined in the six months to March 31.

Hopes that the UK economy might eke out modest growth in the first quarter were boosted yesterday by a survey from the Chartered Institute of Purchasing and Supply showing an acceleration of manufacturing growth between February and March.

CIPS' purchasing managers' index for manufacturing, a measure of activity which includes output, new orders, employment, suppliers' delivery times and stocks of goods purchased, rose from 51.5 in February to 52.1 in March on a seasonally-adjusted basis. This took it further above the level of 50 separating expansion from contraction – to signal faster growth.

A key clue on whether or not the UK dodged renewed recession by avoiding a second consecutive quarter of contraction in the opening three months of this year will come with publication tomorrow of CIPS' survey of March services activity.