The Scottish economy is maintaining above-trend levels of growth, with 2006 likely to post growth of 2.3%, according to the Fraser of Allander Institute.

Strathclyde University's economic think-tank says it expects growth to be maintained at 2.2% this year, and ease slightly to 2.1% in 2008.

It notes, however: "This buoyant growth occurs against a background of strong growth in the UK with GDP (gross domestic product) rising by 2.7% last year."

The institute goes on: "Despite uncertainties over the US economy, rising oil prices in the short-run due to political uncertainties in the Middle East and some pick-up in the UK inflation rate, which may prompt a further rise in UK interest rates to 5.5%, above- trend growth is expected to continue in Scotland in 2007 and 2008."

Fraser of Allander's forecasts for growth of 2.2% and 2.1% over the next two years compare with the Treasury's latest (March) assessment of independent forecasts for the UK economy, of an average 2.6% for 2007 and 2.3% in 2008.

Employment growth, however, will be restrained by "some sectors managing to generate more output from a given jobs base". It forecasts net jobs growth of 11,400 for 2006, 19,400 for 2007, and 15,600 in 2008.

"The employment rate is expected to continue above the UK rate, with, in the fourth quarter of 2006, the Scottish rate standing at 76.1% and the UK rate at 74.5%. Unemployment continues therefore to remain low by historical standards."

The institute's director, Professor Brian Ashcroft, says: "Of particular concern is the comparative weakness in the growth of business services in Scotland, the main sectoral driver of economic growth in the UK and other leading economies."

In the third quarter of 2006, real estate and business services grew by 0.6% in Scotland but by 1.4% in the UK.

The weakest area was the public sector (some 22% of the Scottish economy), which contracted by 0.2%, while growing in the UK by 0.3%.