THE Scottish economy stagnated in the three months to February, as the lower drink-drive limit hit the hospitality industry and the production sector contracted, a closely-watched survey has revealed.

The latest quarterly business monitor, published today by Bank of Scotland and conducted by Strathclyde University's Fraser of Allander Institute, shows that equal proportions of businesses north of the Border recorded rises and falls in turnover during the three-month period.

Donald MacRae, chief economist at Bank of Scotland, described the findings of the latest business monitor as a "poor result".

However, he expressed hopes that growth would pick up as the year went on, and noted that firms' expectations of future activity were generally positive.

Of the 408 Scottish businesses which responded to the latest business monitor, 33 per cent reported a fall in turnover during the three months to February, and the same proportion experienced a rise, signalling stagnation. The remaining 34 per cent reported unchanged turnover.

Asked about the reasons for the Scottish economy grinding to a halt in the three months to February, Mr MacRae highlighted weakness in the hospitality sector and cited evidence that this was linked to the lower drink-drive limit put in place in Scotland from early December.

He believed that the reverse in the production sector could be partly the result of a reduction in overall business confidence in Scotland arising from the tumble in oil prices over recent months.

Among Scottish service sector firms, 35 per cent reported a rise in turnover in the three months to February, and 31 per cent experienced a fall. The resultant net four per cent reporting an increase in turnover was down sharply on a corresponding balance of 19 per cent for the preceding three months, suggesting a sharp slowdown in services sector growth to a very modest pace during the survey period.

Commenting on the impact of the lower drink-drive limit, which has been highlighted by Scotland's licensed trade, Mr MacRae said: "I have been speaking at lots of conferences and seminars and meetings. I am getting some information now that some of the fall in turnover...is down to the reduced alcohol level while driving.

"It is concentrated in travel, tourism and leisure. It seems to be concentrated in that sector. It is particularly linked to hotels and catering and it is also having most effect in rural areas."

He added: "There has been a reduction in the number of people going out for a meal. If they do go out for a meal, there is one (person) who doesn't drink at all. Before...they might have one, or whatever."

In the Scottish production sector, which takes in manufacturing, 35 per cent of firms reported a fall in turnover and only 31 per cent experienced a rise. The net 4 per cent of Scottish production firms reporting a fall in turnover signalled a modest contraction of this sector in the three months to February. This was in contrast to the preceding three months, during which a balance of 12 per cent of Scottish production firms achieved a rise in turnover.

Asked whether he believed the reverse in production turnover was related to the drop in oil prices in recent months, Mr MacRae said: "I think it is partly oil-related because the oil sector, of course, has a lot of influence on the whole economy."

He believed the oil price was one of several uncertainties affecting Scottish business confidence. Mr MacRae also cited the Russia-Ukraine tensions and the impact of this situation on trade, and uncertainty over the UK's continuing membership of the European Union.

One bright spot in the latest survey was the finding that a net six per cent of Scottish firms achieved a rise in export activity during the three months to February. A net four per cent had experienced a fall in export activity in the preceding three months. Mr MacRae cited more positive signs from Scottish firms' eurozone markets, although he also highlighted the challenges presented by sterling's appreciation against the single currency.

A balance of 14 per cent of Scottish firms predicted an increase in turnover in the coming six months.

Citing Bank of Scotland's monthly 'report on jobs', Mr MacRae said: "The one thing that reassures you most that what we are seeing here, you would hope, is a temporary slowdown in December, January, February is the fact that employment intentions are quite favourable. You wouldn't get that if we were going into a prolonged slowdown."

He added: "I still believe that the Scottish economy is, overall, still growing as we speak. I do believe that growth will pick up as we go into spring and summer and we will show positive growth for the year as a whole."

Mr MacRae forecast that that the Scottish economy could achieve the 2.6 per cent growth predicting by the Fraser of Allander Institute this year, believing this would be a bit behind expansion in the UK as a whole.