THE Scottish economy showed modest growth in the latest quarter, with businesses recording the sharpest rise in exports for three years as production and tourism businesses benefited from the weak pound, a survey shows.

Similar modest expansion of the private sector economy is predicted by companies over the next six months, in the survey published today by Royal Bank of Scotland.

The survey, conducted by Strathclyde University’s Fraser of Allander Institute, also flags a jump in companies’ costs.

Stephen Boyle, chief economist at Royal Bank, said: “I would characterise this as another quarter of growth - not shoot-the-lights-out growth but modest growth - and firms expecting a continuation of that kind of pace of growth into the first quarter of next year.”

He added: “The most encouraging aspect of it is what now looks like a sustained rise in exports. I think that is down in part to the weakening of sterling now beginning to have an effect on export performance. It is likely to reflect the resumption of decent growth in eurozone markets as well.”

But he cited as a negative the elevated cost pressures for companies arising from sterling weakness, which has made imports more expensive.

Mr Boyle said: “That suggests inflation will continue to be above target, squeezing consumers’ disposable incomes.”

The survey, of more than 400 Scottish businesses, signals another fall in capital investment.

It signals that growth of activity for companies was fastest in the Highlands and Islands but that north-east Scotland, which has been hit hard by the oil downturn, saw modest contraction.