Scottish firms have wind at their back heading into 2018

● Business optimism being fuelled by strongest quarter of 2017 in final months

Scottish business is poised for the New Year to usher in its fastest period of expansion in four years, a closely-watched survey today indicates.

The growth is expected to be fuelled by strong pickup in business overseas as Scottish exporters benefit from weaker sterling and better macroeconomic conditions globally, particularly in the eurozone, notes the latest Royal Bank of Scotland Scottish Business Monitor.

In a poll of 400 Scottish businesses conducted by the Fraser of Allander Institute, the report says expectations for the first half of 2018 have been “buoyed” by the fastest period of growth this year during the final quarter of 2017.

The survey says that more than one in four (29 per cent) enjoyed an increase in export activity in the three months to December compared to one in five (20 per cent) reporting a decline.

The services sector led the way with a net +17 per cent reporting an increase in export activity (+6 per cent in Q3). Businesses are optimistic that the trend will continue, with a net 24 per cent expecting export activity to rise over the next six months.

Stephen Boyle, chief economist with RBS, said: “Christmas appears to have come early for Scotland’s economy. The three months to mid-december delivered the fastest growth of the year. However, that pace of growth remains modest by the standards of the past.

“If businesses’ expectations are realised, growth in the first six months of 2018 will sprout to its fastest pace in four years. At least in part, that gift comes courtesy of an improvement in export performance as firms benefit from sterling’s fall and Europe’s growth.”

The monitor reveals that more than a third (37 per cent) of firms reported an increase in the total volume of business during the last quarter, compared to 27 per cent who witnessed a fall in activity. The balance of 10 per cent represents a rise of one point on Q3 2017.

Growth was strongest in the Highlands & Islands (19 per cent) and weakest in the North-east (1 per cent). This shift in the North-east is still an improvement in a reported fall of -4 per cent during Q3 2017.

Boyle added: “This latest report does suggest that the North-east’s oil-related downturn has passed. The only weak spot in this improved outlook for the economy is capital investment with firms reporting that it fell again in the last three months. Inflationary pressures remain elevated and consumers will find it tough going once the seasonal sales have passed.”

Professor Graeme Roy, director of the Fraser of Allander, said: “After a challenging 2017, the final Scottish Business Monitor for the year suggests that firms in Scotland are continuing to remain resilient with both turnover and the volume of activity remaining positive.”

On the downside, inflationary pressures have led to more than half of companies predicting costs to rise in 2018.