SCOTTISH business is expected to experience its fastest period of growth in nearly four years.

Weakening sterling and strong global growth are predicted to fuel Scotland’s economy during the first half of 2018, creating strong pick-up in overseas businesses for Scotland’s exporters.

Despite this, more than half of firms expects costs to rise further during the next six months due to inflationary pressures.

The findings are contained within the latest Royal Bank of Scotland Business Monitor, conducted by the Fraser of Allander Institute.

The survey of nearly 400 Scottish businesses revealed that more than one in four (28 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 increase on Q3 2017 was the strongest since 2014.

Scottish businesses are optimistic of the trend continuing, with a net 24 per cent expecting export activity to rise over the next six months.

Stephen Boyle, chief economist at Royal Bank of Scotland, 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.

“This latest report does suggest that the north-east’s oil-related downturn has passed.”

Capital investment was an area of weakness, however, as it continued to fall.

One in five firms (20 per cent) reported that new capital investment rose in the three months to December, but one in four reported a fall (25 per cent).

That negative total of five per cent marks a significant drop from Q4 2016, when the same figure was a positive 24 per cent.

Inflationary pressures are continuing to impact upon costs for Scottish business.

A total of 59 per cent of all businesses stated that costs rose over the last quarter, with tourism hit hardest at 81 per cent.

More than half (56 per cent) of all firms expect costs to increase in the next six months, suggesting businesses are concerned that inflationary pressures will continue to build.

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

Collectively, a net 13 per cent of all firms surveyed said they expected total business volumes to rise in the next six months. If these expectations are realised the first half of the year will see the strongest growth since late 2014 when the falling oil price began to bite.

Professor Graeme Roy, director of the Fraser of Allander Institute, said: “Exporting firms continue to take advantage of the competitive pound but levels of business investment remain disappointing.

“With the Scottish Fiscal Commission forecasting a weak outlook for productivity in the years ahead, turning around levels of investment in our economy will be vital for long-term economic prosperity.”