Scottish growth will be "subdued" for the rest of this year but is likely to accelerate in 2008 to a 2.5%-plus rate, which would be significantly above its long-term average, according to a survey from Bank of Scotland today.

Tim Crawford, group economist at Bank of Scotland parent HBOS, highlighted business optimism and orders, consumer confidence, and the continuing strong performance of the Scottish labour market as key factors likely to drive greater economic growth north of the border next year.

He pointed to recent rises in interest rates, and financial market turbulence as the factors expected to crimp growth this year. The Bank of England has taken UK base rates to 5.75% with five quarter-point increases since August last year, and a significant minority of economists is forecasting another increase.

Bank of Scotland's latest economic growth forecasts are contained in its quarterly index of leading indicators report. This uses a raft of survey evidence and official data to predict the future, including surveys on business conditions and consumer confidence, official gross domestic product and industrial production data, Scottish companies' share prices, new housing start and car registration figures, and demand for permanent staff. Short-term interest rates and the UK yield curve are thrown into the mix.

Crawford prefers to focus on a 30-year trend rate of growth for the Scottish economy, which he calculates at around 1.8%.

He expects "around trend" growth in Scotland this year - estimating it will come in at between 1.8% and 2%. This would be a marked slowdown from 2.6% growth in 2006.

Royal Bank of Scotland's PMI (Purchasing Managers' Index) Scotland report showed output growth in the private sector economy slowed to a 19-month low in July.

On a more upbeat note, Crawford said: "The leading indicators are suggesting (growth in the) first half of 2008 pushing up through 2.5%."

Asked if he expected a weaker performance in the second half of this year than in the first, he replied: "It is actually fairly even...Maybe slightly better in the first half, reflecting the ongoing strength in the housing market."

Bank of Scotland is projecting Scottish growth will be above its long-term average in the first quarter of 2008 and sees it "potentially strengthening further" mid-year.

A study published this week by the Centre for Public Policy for Regions, by economists John McLaren and Richard Harris, highlighted a raft of reasons for doubting that existing official Scottish growth data are robust.

In particular, it notes that official data suggest relative weakness in Scotland's retail and hospitality sectors. This conflicts with evidence on the ground, in terms of the welter of retail and hotel developments, and with a raft of survey evidence.

Asked about the CPPR report, Crawford said that Bank of Scotland's leading indicators survey was showing that "a lot of the strength" was coming from these retail and leisure sectors.