DESPITE recent falls in the value of the pound, the sustained strength of sterling over the past 20 months continues to cast a shadow over Scotland's tourism industry.

Many holidays to be taken in Scotland this year were booked in 1997, when the pound was high and rising. As a result, the majority of hotels and visitor attractions expect to see fewer tourists from abroad this summer.

However, confidence appears to be on the rise as the number of visitors from other parts of the UK is expected to increase. According to the Scottish Tourism Index, this should offset any decline in foreign holidaymakers.

The quarterly index produced by the Royal Bank of Scotland and the Scottish Tourist Board surveys a sample of representatives from five areas within the tourism industry. These include large hotels, small hotels, bed and breakfasts, self-catering establishments and visitor attractions.

Of these, only the self-catering sector expects to see a decline in total visitors this summer. It forecasts a 2% fall, while the other four sectors predict business levels during the next three months will run at least 13% ahead of the same period last year.

Large and small hotels believe growth will be fuelled by higher demand from Scottish and other UK visitors. Most businesses operating in other sectors expect a fall in Scottish trade and an increase in demand from other parts of the UK.

Scottish Tourist Board chief executive Tom Buncle said the evidence showed the industry was holding up well despite some difficult circumstances. However, he predicted the slowing growth of tourism in Scotland would grind to a halt this year.

''While the evidence from the Royal Bank of Scotland Index is encouraging, it does confirm that we should anticipate a standstill in visitor numbers in 1998,'' he said.

Levels of confidence in the industry continue to be dented by the spectre of sterling. A small balance of large hotels and visitor attractions reported a year-on-year rise in optimism in the first quarter of 1998, while confidence weakened in the remaining sectors.

The index, which also judges optimism in terms of investment plans, found a strong balance of operators in all sectors were increasing spending on improving facilities. Investment intentions were strongest for large hotels and self-catering establishments - where a balance of 31% plan to increase their spend - and lowest for visitor attractions, where the balance was only 15%.

Provisional data on 1997 tourism expenditure revealed a 2% to 3% rise on the previous year, which was in line with inflation so at a virtual standstill in real terms. Visitor numbers also rose moderately, although the hotel occupancy index fell slightly from 62% in 1996 to 61% last year.