THE UK Government is "running out of excuses" for the economy's weak performance, the Federation of Small Businesses in Scotland declared yesterday.

And Scottish Chambers of Commerce said it was “concerned now in terms of Scotland”, after data revealed UK output grew by just 0.2% in the second quarter.

The data from the Office for National Statistics also show that, with the UK’s economy having stagnated in the six months to March, its gross domestic product has increased by only 0.2% over the nine months to June.

Colin Borland, head of external affairs at the FSB in Scotland, noted talk in the spring about the Royal Wedding and extra public holiday providing a major boost to retail sales.

Chancellor George Osborne yesterday noted the ONS’s comment that the Royal Wedding was a factor which had dampened overall UK growth in the second quarter. He had blamed severe winter weather for the 0.5% tumble in UK economic output in the fourth quarter of last year.

Mr Borland said: “We were being told that the Royal Wedding and the bank holidays had (produced) all these bumper retail figures and wasn’t this wonderful.

“Now we are being told the Royal Wedding is the reason the growth figures were disappointing. First it was the bad weather. Now it is the Royal Wedding. I think they (the UK Government) are running out of excuses, frankly. There is obviously an underlying problem that business is not growing and a lot of that is down to confidence.”

The FSB’s small business index showed Scottish firms were less confident in the second quarter of 2011 than at the start of the year.

Mr Borland called on the UK Government to take action to stimulate the economy, advocating a cut in the rate of value-added tax for construction work and tourism businesses to 5%.

Mr Osborne hiked the standard rate of VAT from 17.5% to 20% from January.

Mr Borland said: “If people are losing their jobs (or) they are worried about losing their jobs, they are not out spending. If people aren’t spending, businesses aren’t investing.

“There needs to be something done to kick-start the economy in the short term, which is why we are looking at the VAT rates on construction and tourism.”

Garry Clark, head of policy and public affairs at Scottish Chambers, said of the second-quarter GDP data: “It is an extremely slim margin of growth. Clearly the picture this year looks extremely sluggish. I suppose it is still in positive territory, but it is not headed in as much of the right direction as we would like to see.”

Noting Scottish growth of 0.1% had trailed UK expansion of 0.5% in the first quarter, Mr Clark added: “As far as Scotland is concerned, if we end up in the same position as we did in the first quarter and come nowhere near matching UK growth, obviously we are danger of contraction.”

Highlighting the jump in companies’ energy, transportation, and raw material costs, he said: “We are concerned about how the second half of the year might pan out, given the first half. I think we are all a wee bit concerned now in terms of Scotland.”

In spite of these concerns, Mr Clark took comfort from a signal in Scottish Chambers’ own survey that, excluding a struggling retail sector, the economy north of the Border strengthened between the first and second quarters.

The poor UK GDP figures came on a day on which Bank of England Governor Mervyn King visited Scotland. He met privately with members of Edinburgh Chamber of Commerce, and was hosted by chamber chief Ron Hewitt.

Sir Mervyn, who has highlighted the challenges facing the UK economy and made the case for holding base rates at a record low of 0.5% in spite of high inflation, said: “It is important to be able to see for myself what is happening in the Scottish economy. Speaking directly to businesspeople adds a great deal to our understanding of economic conditions.”

While output of the UK’s dominant services sector rose 0.5% quarter-on-quarter in the three months to June, as did construction activity, manufacturing contracted by 0.3%. This contraction in manufacturing may dis-appoint Mr Osborne, who in his March Budget offered his vision of a “Britain carried aloft by the march of the makers”.

Mining and quarrying, including oil and gas extraction, suffered a 6.6% fall in output in the second quarter alone.

Overall UK GDP in the second quarter was up just 0.7% on the same three months of last year. This was a sharp slowdown from a year-on-year pace of expansion of 1.6% in the first quarter.