SCOTLAND achieved only marginal growth in the second quarter as the services sector stagnated, official figures have revealed, prompting one leading economist to highlight the dangers of pushing up UK interest rates too quickly.

Gross domestic product (GDP) in Scotland grew by only 0.1 per cent quarter-on-quarter in the three months to June, according to the latest seasonally-adjusted figures from the Scottish Government.

This was well adrift of the corresponding rate of expansion of 0.7 per cent for the UK as a whole. Services output in Scotland in the second quarter was flat, compared with the opening three months of the year.

And Scottish manufacturing output contracted by 1.1 per cent quarter-on-quarter in the three months to June. This was a much steeper drop than the 0.5 per cent decline in manufacturing output in the UK as a whole.

UK services sector output grew by 0.6 per cent in the second quarter.

However, there have in recent weeks been a raft of signals that the belated UK economic recovery has lost significant momentum since the end of the second quarter.

And Brian Ashcroft, emeritus professor of economics at the University of Strathclyde, warned there was a risk of renewed recession if UK interest rates were pushed up too fast against this backdrop of weaker expansion.

He said: “Clearly there is a sort of worldwide dimension affecting the recovery, which suggests there is a slowdown coming along the track, particularly with China slowing down.”

Citing recent signs that growth of the UK services sector has already begun to slow down, and noting the latest Scottish GDP figures, he added: “This is a good pointer to people not to push interest rates up too quickly in the United Kingdom.”

UK base rates have been at a record low of 0.5 per cent since March 2009.

Mr Ashcroft, who is also economics editor of the Fraser of Allander Institute think-tank’s highly-regarded commentary, said of the UK situation: “I think it is quite important for people to realise that this has been a very, very slow recovery.

“We are getting to the point now where the best of the recovery might well be past. This notion that we should somehow be pushing up interest rates very quickly is very damaging, more so because a large degree of debt still exists in British households.”

He added: “If we start pushing up interest rates, that could lead to a pretty quick downward spiral, and recession. That is what we are worried about at the institute.”

Andy Willox, Scottish policy convenor at the Federation of Small Businesses, said: “Recent evidence from our members revealed a significant dip in small business confidence. (The) growth figures show that there’s obviously still work to do to get Scotland’s economy firing on all cylinders at a national and local level.”

He added: “We need to make Scotland’s local economies less vulnerable to global economic shocks and, in our view, that means developing our small businesses to make local communities more resilient.”

Scottish Chambers of Commerce warned in July that weakness in the oil and gas services sector could hit the broader economy north of the Border.

Financial and insurance activities, accommodation and food services, and transport, information, and communication were among the Scottish services sub-sectors to suffer significant falls in output in the second quarter.

Within manufacturing, the metals and machinery, and transport equipment sub-sectors showed respective 5.4 per cent and 6.7 per cent falls in output during the second quarter. However, the electronics sub-sector achieved a 3.7 per cent rise in output.

The Scottish construction sector grew by 3.5 per cent quarter-on-quarter during the three months to June.

This was well ahead of 1.4 per cent growth in construction output in the UK as a whole.