SCOTTISH manufacturers suffered falling domestic and export orders and cut employment in the fourth quarter of 2011, as the construction and retail sectors north of the Border were hammered by tumbling demand, a key survey reveals today.

Against this backdrop, business optimism declined further across all sectors of the Scottish economy.

The Scottish Chambers of Commerce, which conducted the survey with Strathclyde University's Fraser of Allander Institute, warned that there were "few signs of any improvement" in the economic picture this year.

It added that it expected "another difficult year" for the Scottish economy in 2012.

The findings of Scottish Chambers' survey would seem likely to fuel fears of renewed recession.

It adds to an increasing weight of grim evidence about the state of the economy in Scotland and in the UK as a whole, at a time when much of the Conservative-Liberal Democrat Government's public sector job-cutting programme has yet to be implemented.

Scottish manufacturers signalled that their overall new export orders had fallen in the fourth quarter of last year, ending a rising trend over the preceding 12 months.

And the survey pointed to a further significant drop in these firms' orders from Scotland and elsewhere in the UK.

Scottish manufacturers' optimism tumbled further. And the survey signals that employment in the manufacturing sector north of the Border fell in the fourth quarter, after a period of increase.

Meanwhile, 83.3% of Scottish retailers reported a fall in sales in the fourth quarter, with only 8.3% enjoying a rise.

The survey also pointed to a significant drop in employment in the Scottish retail sector, with optimism among retailers plummeting.

Scottish construction companies, meanwhile, signalled a further tumble in new contracts in the final three months of last year. And the pace of decline accelerated from an already sharp rate in the third quarter.

The survey signalled the pace of decline of employment in the Scottish construction sector accelerated sharply in the fourth quarter.

Tourism providers signalled a modest rise in total demand and visitor numbers, although the pace of increase eased and their optimism tumbled.

Scottish Chambers said trends in the bar and restaurant trade, and for conference and function facilities continued to decline.

Garry Clark, head of policy and public affairs at Scottish Chambers, said: "Scottish business faced many challenges in 2011, and these will remain and pose difficulties for Scottish firms again through 2012.

"We expect another difficult year for the economy.

"Internationally the ongoing uncertainty surrounding the eurozone impacts directly on the UK economy, and especially on our major export markets. Domestically, demand continues to be weakened by employment insecurity and tightening household incomes."

He added: "Consumers are spending less and prioritising their expenditure, with the consequences feeding through both the manufacturing and service sectors. It is important to boost domestic demand for manufacturing, given the likely volatility in our established international markets."

More positively from an economic viewpoint, official data from the Office for National Statistics showed a tumble in annual UK consumer prices index inflation from 4.8% in November to 4.2% in December, aided by lower petrol prices.

A further sharp fall is likely this month when Chancellor George Osborne's hike in value-added tax, implemented in January 2011, drops out of the year-on-year comparison of consumer prices.

This fall in inflation would appear to give the Bank of England scope to hold UK base rates at a record low of 0.5% for many more months, something which has been called for by Scottish Chambers, and to increase the scale of its quantitative easing programme beyond the current £275 billion.

This QE programme is aimed at boosting money supply and stimulating the economy.

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