The Scottish economy is in crisis and “grinding to a halt” with the outlook for business at its gloomiest for more than a decade, according to figures published today.

The Lloyds TSB Scotland Business Monitor report also predicts a 28 per cent drop in turnover for Scottish businesses in the next six months.

The report is the most pessimistic in a series of economic assessments and challenges the SNP's claim that the Scottish economy is more resilient than that in the rest of the UK.

It is also a major setback for the Scottish government's target that growth in the economy will be boosted to match that across the rest of the UK by 2011. The report rates that aim as “unlikely”.

The report says that companies are being hit by a combination of a sharp fall in orders, a reduction in output and spiralling costs. The economic trauma, it adds, is set to continue until well into next year and beyond.

“The implication is that growth in the private sector of the Scottish economy in the last three months has slowed dramatically ... This is the first time in the history of the Business Monitor that expectations have been largely negative.”

The report added that the overall net balance - those companies reporting an increase in turnover less those reporting a decrease - now stood at minus 10 per cent. “This is an unwelcome change on the plus 11 per cent balance of the previous quarter and a huge fall on the plus 28 per cent figure on the same quarter a year ago.”

Businesses in the service sector, which make up an increasing proportion of the Scottish economy, are being hit hardest, with a net balance of minus 20 per cent.

The report's findings come as it emerged that the Scottish housing industry could lose 30,000 jobs this year because of the credit crunch.

MSPs were told yesterday that house building could also fall by half in 2008, according to the private industry body Homes for Scotland.

The economic downturn has also seen significant cuts in estate agent and surveyors' jobs, Holyrood's Economy Committee was told.

Allan Lundmark, of Homes for Scotland, said that, by the end of June, 15,000 jobs had been lost in housing development. “As of last week we think that figure could have moved to 30,000.”

Mr Lundmark said that construction levels had remained stable for the past five years, at about 25,000. But he added: “The information we have now, we think that Scotland will drop to at least 15,000 this year. That figure could drop to 12,000, so production could be halved.”

Professor Donald MacRae, chief economist at Lloyds TSB Scotland, said that today's study had produced a highly pessimistic picture. “The Business Monitor shows the Scottish economy feeling the effects of the credit crunch with slowing output, increasing costs and falling expectations to produce the most pessimistic assessment of future prospects in nearly 11 years.

“After above trend growth in 2007, the Scottish economy is facing reduced growth in 2008.”

The Lloyds TSB report echoes a raft of studies produced in recent weeks. The Index of Leading Economic Indicators report produced by the Bank of Scotland concluded that the Scottish economy was experiencing a major slowdown.

CBI Scotland also reported that confidence among Scots businesses had slumped to its lowest level for 28 years.

A study by the Scottish Chambers of Commerce found that companies were reporting that the economic downturn was now “much more evident” than three months ago with construction, retail and tourism businesses badly hit. The trade body Scottish Engineering said that the credit crunch was now hitting the manufacturing and engineering industries, with orders falling for the first time in five years.

The respected economic think-tank the Fraser of Allander Institute gave warning in June that the Scottish economy was in line for a long term downturn because of the credit crunch. It estimated that economic growth in Scotland would slow to 1.9 per cent this year, down from 2.2 per cent last year.

Holyrood politicians reacted with some shock to the Lloyds report. Derek Brownlee, the Tory finance spokesman, called it “a stark assessment”.

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