SCOTTISH economic growth ground to a halt in the first quarter but companies project a pick-up in the coming six months, a key survey reveals.

Royal Bank of Scotland, publishing its latest business monitor in conjunction with the University of Strathclyde’s Fraser of Allander Institute today, highlights East Central Scotland as a “lonely beacon” of growth in the first quarter.

The survey also shows a fall in Scottish companies’ export activity and capital investment, and signals intense inflationary pressures.

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Noting signs that the financial and business services sector was strong in East Central Scotland, Royal Bank chief economist Sebastian Burnside said: “If it is finance that is driving it, it is going to be Edinburgh that is really doing the hard work there.”

He described the fall in export activity as a “disappointment”, while noting companies expected an overall rebound in overseas business in the coming six months.

Mr Burnside also flagged the likely impact of extreme winter weather on activity in the first quarter, noting the survey period included the “Beast from the East” weather system which brought heavy snow and freezing temperatures to Scotland and other parts of the UK.

With 32 per cent of Scottish companies reporting a rise in business volumes for the first quarter and 31% posting a fall, only a net 1% achieved an increase.

This signals near-stagnation, and is the weakest outturn for nearly two years. It also marks a significant deterioration from the fourth quarter of last year, when a net 10% of Scottish companies reported a rise in business volumes.

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The survey signals broad stagnation of business volumes across the overall production and services sectors in the first quarter.

Royal Bank noted that, apart from the growth in business volumes in East Central Scotland, all other regions of the country recorded near-zero expansion or decline.

However, a balance of 20% of Scottish businesses forecast a rise in business volumes in the six months to September.

Royal Bank noted that, if these expectations were achieved, this would be the strongest growth in business volumes since 2014.

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A net 29% of Scottish business and financial services companies projected growth in business volumes over the coming six months.

The survey shows a balance of 5% of Scottish companies recorded a fall in export activity in the first quarter, with only 16% achieving a rise and 21% posting a fall.

This signals the first decline in export activity for Scottish companies since late 2016, and is in stark contrast to the balance of 13% of businesses north of the Border achieving a rise in the fourth quarter of last year.

Mr Burnside said of the fall in exports: “It was a bit of a surprise [and] disappointment that things don’t seem to have carried on growing quite so much in the first quarter of this year. Hopefully, this turns out to be a little blip in a fairly volatile picture rather than a reversal of previous trends.”

He took encouragement from the survey’s finding that a net 7% of Scottish companies expect a rise in export activity in the coming six months.

Mr Burnside noted north-east Scotland, which has been hit hard in recent years by the global oil and gas sector downturn, had seen a marginal decline in business volumes in the first quarter.

However, highlighting north-east companies’ projections of growth in the coming six months in the context of the recent recovery in the oil price, he said: “They do look to be turning the corner, which is good.”

He meanwhile noted signs from the survey that medium-sized and large companies in Scotland were faring better than their smaller counterparts.

Mr Burnside said: “[There are] definitely signs things are a bit tougher at the smaller end.”

A balance of 7% of Scottish companies recorded a fall in capital investment in the first quarter. And a net 7% projected a decline in capital investment over the coming six months.

A net 8% of Scottish companies recorded growth in new business over the first quarter. Meanwhile, 59% of companies experienced a rise in costs in the first quarter, with only 4% recording a fall.