SCOTTISH firms are facing strong inflationary pressures and have achieved only modest growth, while falling investment has raised concerns that Brexit is weighing on them, but the oil sector-induced downturn in the north-east appears to have troughed.

This mixed picture of the economy north of the Border is painted by Royal Bank of Scotland’s latest quarterly business monitor, published today.

This indicates overall growth of the private sector economy slowed in the three months to February.

About 34 per cent of the 400-plus Scottish companies surveyed for Royal Bank by Strathclyde University’s Fraser of Allander Institute reported a rise in business volumes and 31 per cent posted a fall.

The net three per cent reporting a rise signalled a slowdown from the rate of growth in the preceding three months, when a balance of 11 per cent of companies achieved an increase in business volumes.

Expansion in the three months to February was driven by the services sector, with the survey signalling a marginal overall contraction in business volumes for production companies.

Financial and business services companies led the way in terms of growth, with the transport and communications sector also showing strength.

Across Scotland, companies forecast faster overall expansion in business volumes in the coming six months than in the December to February period.

Royal Bank chief economist Stephen Boyle highlighted a signal from the survey that the economy in north-east Scotland, which has been hit hard by the oil and gas sector downturn and its knock-on effects, has troughed.

He noted that, while there had been a further fall in activity in the north-east in the three months to February, firms in the region were now predicting a resumption in growth.

A net 10 per cent of companies in the north-east predict business volumes will increase in the coming six months.

Mr Boyle said: “It looks as if we have got to the trough in the north-east. There was a further decline in activity in the last three months but businesses expect a modest improvement over the next six months.”

He added: “It is the first positive sign we have had in the north-east for two years or more.”

However, across Scotland, 29 per cent of companies reported a fall in new capital investment during the three months to February, while only 21 per cent posted an increase.

The balance of eight per cent reporting a fall in new capital investment contrasts with a net 24 per cent posting an increase in the preceding three months.

Mr Boyle said: “It looks as if capex is down a little bit. That is wholly consistent with what we have seen both in the UK-wide surveys and with the investment numbers for the UK for Q4 of last year.

“Scottish businesses in this survey are consistent with that. That begs the question, ‘Why is that the case?’ Does that signal concerns, for example, about Brexit. In addition to inflation, that is the cloud on the horizon.”

Figures published by the Office for National Statistics showed UK business investment fell by one per cent quarter-on-quarter in the final three months of last year.

About 59 per cent of Scottish companies reported a rise in costs over the three months to February, while only seven per cent experienced a fall, highlighting inflationary pressures fuelled partly by sterling weakness since the Brexit vote. A net 56 per cent forecast a rise in costs in the next six months.

The survey shows Scottish companies’ exports were broadly flat over the three months to February.

Mr Boyle noted that, prior to that, the export balance had been negative “for the best part of two years”.

He declined to comment on the issue of a second Scottish independence referendum.