SCOTLAND’S economic performance on balance strengthened in the first half of 2017 according to the Scottish Government’s latest State of the Economy report.

The report, published by Scotland’s Chief Economist, Dr Gary Gillespie. says the improvement follows a challenging 2016 which saw a combination of headwinds impact on growth.

But it warns of the risk posed by Brexit to the Scottish economy and points to the recent interest rate rise and Scottish consumers’ response to that as a key factor to the future.

Over the first six months of 2017, GDP growth in Scotland was broadly in line with the UK as a whole with broad-based growth across the services sector being the main driver of growth over the period.

The production sector has grown for the first time since the start of 2015, helped in part by the low value of sterling supporting exports, and the pick-up in economic sentiment and outlook in the oil and gas sector, as has been shown by industry surveys.

Scotland’s labour market continues to perform strongly. The number of people in employment is close to a record high, while the unemployment rate is near its lowest rate since current records began in 1992.

The employment boom in Scotland has been driven by two trends: a rise in full-time employment by 55,000 over the past year, with part-time employment falling by 15,000, and a growth in self-employment by 23,000. The self-employed growth is over a broad range of occupations, including construction, finance, distribution, hotels and restaurants.

Economy Secretary Keith Brown said: “It is encouraging to see further evidence that the foundations of Scotland’s economy remain strong, with positive forecasts on growth.

“However, growth is slower than we would like to see and the UK Government’s stance on Brexit continues to present a huge threat to jobs and prosperity in Scotland. We will continue to do all we can to support growth in our economy.”

The acceleration in inflation resulting largely from the depreciation of sterling after the EU referendum has squeezed households’ spending power, with growth in earnings in 2017 not keeping pace with prices.

But the response of consumers to changes in the economic outlook will be key to determining Scotland’s future economic prospects, according to the report.

Factors will include the Bank of England’s decision to increase the base interest rate to 0.5 per cent in November, the first rate rise for a decade.

The report says: “While the base rate remains exceptionally low and effectively returns to its pre-EU referendum rate where it remained unchanged for seven years, this potentially marks the start of a gradual process of returning interest rates closer to their pre-financial crises levels.

“The outlook for the Scottish economy is similar to that presented in June with independent forecasts indicating growth of around 1 per cent in 2017 and 2018.”

But it adds: “Brexit remains the key risk to Scotland’s economy, particularly to business and consumer sentiment.”

A new set of predictions on the economy is on its way later this year . The Scottish Government’s draft Budget on 14 December will be accompanied by the first forecasts by the Scottish Fiscal Commission as it moves from being a scrutineer to producing the official forecasts for the Scottish Government.