Economic growth in Scotland has dramatically slowed, official figures published yesterday showed, confirming fears that the Scottish economy is headed for recession.

Industry leaders said that following recent gloomy business surveys, a sharp contraction in the Scottish economy in the second half of this year is almost certain.

Scottish government statisticians said that growth in May-June this year was just 0.1 per cent, well down on the average quarterly growth rate of 0.5 per cent recorded over the last year.

The figures show that the biggest hits are being taken by financial services, property and business services, down by 1 per cent in May-June, reflecting the way the current financial crisis has hammered the big two Scottish banks, HBOS and RBS, and hit property prices.

Troubles in the construction industry, reported in The Times yesterday, caused it to contract by 0.4 per cent. Continued strong growth in engineering, up 1.9 per cent, and electronics, up 0.8 per cent, was only barely enough to offset decline in the much bigger service economy.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said the figures tallied with messages coming from businesses right across Scotland: “They demonstrate that the pressures on the construction sector ... are bringing our overall economic growth levels right down to the wire.

“The downturn in global stock markets and the latest pressures on the banking system have not yet been reflected in these GDP figures, and there remains a real possibility that our economy may move into negative territory in quarters three or four.”

Tony Mackay, an independent economics consultant, said: “I expect the Scottish growth figures over the next year or so to be very similar to the UK ones and possibly a little worse.”

While a large public sector and a smaller falls in house prices would provide some protection, he said, the financial sector was proportionately larger and harder-hit than London-based banks.

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