SCOTLAND’s private sector economy continued its recovery in the latest quarter and is on course to achieve moderate growth for the rest of the year in spite of the downturn in the North Sea, a closely-watched survey has found.

Research for the latest Bank of Scotland Business Monitor points to a marked improvement in trading conditions during the three months to 31 August when levels of new business rose strongly on the preceding quarter.

The findings should help dispel fears the private sector recovery in Scotland could be derailed amid the slump in North Sea oil and activity that has followed the plunge in the crude price.

They come as economists predicted the downturn in the North Sea will weigh on business investment in the UK for years but not enough to stop the private sector powering strong growth in the economy.

The Business Monitor had found growth stagnated in Scotland in the three months to February as the lower drink-drive limit hit the hospitality industry and the production sector contracted.

Oil and gas firms have slashed spending and jobs since the oil price started tumbling in June last year and the effect of the cut backs have been felt across the supply chain. Some firms in sectors like engineering rely heavily on the oil and gas industry for work.

But the resulting fall in fuel and energy prices has provided a boost to businesses and consumers.

Donald MacRae, chief economist, Bank of Scotland, said while the Scottish economy slowed at the start of 2015 it is expected to have achieved moderate growth in summer and autumn.

He added: “Expectations remain positive and suggest that current growth rates will be maintained in the third quarter of the year."

Noting that confidence about the trading outlook increased in the latest quarter, the bank said the expectation levels suggest the private sector will show growth close to but below trend level in the third quarter of 2015.

The survey paints a brighter picture than the latest PMI research for the bank, which found growth slowed in August.

However, the results of the August business monitor indicate firms in the services sector are faring much better than those in industries such as manufacturing.

A balance of 12 per cent more services firms reported an increase in sales than recorded a drop in turnover. The number of production firms that recorded growth only narrowly exceeded the number that suffered a fall in trade.

Exporters seem to have been having a tough time of it, with production businesses in particular recording a sharp drop in sales. Bank of Scotland noted export activity in key markets was much lower than a year ago.

“An increase in uncertainty, a slowing world economy and a rising pound sterling have taken their toll of firms’ assessment of export prospects,” said the bank.

Meanwhile, the EY Item Club predicted the UK economy will enjoy sustained growth in coming years spurred by record business investment although the slowdown in the North Sea will have a big impact on spending.

The club’s economists noted fears the global economy may stagnate for some time but said the UK should avoid that fate helped by businesses investing heavily in support of their growth plans.

Martin Beck, senior economic advisor to the EY ITEM Club, said: “There are strong reasons to be optimistic about prospects for investment over the next few years. A continued appetite among firms to invest will be good news for productivity growth, and will ensure that the expansion of the UK’s economy is sustainable.”

However, the Item Club cautioned that cuts in spending by North Sea oil and gas firms following the plunge in the crude price will likely drag on investment growth.

The club said with the extraction sector representing seven per cent of total business investment, a drop in investment by oil and gas companies will have a disproportionate effect on capital spending on plant and equipment and the like by firms.

Experts at the EY Item Club forecast investment by all firms will rise by an average 6.4 per cent a year from 2015 to 2019. It is expected to reach a record high of 12.9 per cent of national output in that year.

They reckon businesses will be encouraged to invest by cuts in corporation tax, low borrowing costs, the increasing availability of finance, healthy corporate balance sheets and cheaper energy.

The introduction of the ‘living wage’ next year should spur firms to invest more in labour-saving technology and improving efficiency.

The Business Monitor survey was conducted by the Fraser of Allander Institute at Strathclyde University, which got responses from 414 businesses from a range of sectors.