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Recovery could stall as growth forecast falters

SCOTTISH manufacturers experienced a strong second quarter but those in the service sector had more mixed fortunes, a closely watched survey has said.

The British Chambers of Commerce, which publishes its quarterly research today, said many indicators it monitors had fallen back between April and June including all those covering exports and investment.

While it acknowledged the first three months of the year were particularly strong the group warned it may downgrade its estimate of 3.1 per cent growth in GDP this year unless things pick up again. The research, which collates responses from more than 7,000 businesses, said concerns over interest rates had also risen.

David Kern, chief economist at BCC, said: "Rises in sterling are making UK exports more expensive. Uncertainties around early interest rate increases are adding to the difficulties, and our excessively large current account deficit poses potential risks. UK growth cannot permanently rely on rising consumer spending, which is driven by a buoyant housing market, and on excessive household debt. Unless investment and net exports make bigger contributions to growth, the recovery could stall."

In Scotland, manufacturers were shown to be performing strongly with increases in domestic orders and sales. While there was some slowdown in export sales order books remained in good health.

Employment intentions dropped in the period with the number of firms expected to hire in the current quarter well down.

The research subtracts the proportion of respondents experiencing a fall from those recording a rise then adjusts the findings to give larger businesses a greater weighting. In manufacturing, the weighted balance of quarter-on-quarter domestic sales rose from 31 to 50, with export sales going from 28 to 23 but orders rising from 24 to 39. In the service sector domestic sales reversed from 3 to -5 with domestic orders dropping from 13 to 3. Liz Cameron, chief executive of Scottish Chambers of Commerce, described the service sector results as a concern.

Across the UK three manufacturing balances were at all time highs although that was down from the six categories at that level between January and March. No service balances were at their highest ever level in the most recent quarter, compared to two in the first quarter of 2014.

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