I agree with Matt about checking the compression ASAP. Get the major stuff out of the way first.

It might be the timing gear? The gear well give you a fair warning (by way of knocking) for a couple thousand miles before it goes. This is a common issue if you have a stock fiber gear, they typically have around a 80k-100k lifespan. One of my 1800's had a knock when I bought it. The PO pulled and went all through the engine (twice) trying to find the cause of the knock. It's tricky to spot as the gears usually show no visual signs of trouble. If you're within that mileage range, I'd suspect this might be your issue.

Note: I'm coming from a later B20 reference. I'm not sure what type of gears Volvo used in the B18? If it's a steel gear set up, it's most likely not the issue?
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1990 240 Wagon, 1984 Turbo Wagon, 1971 1800E Auto, 1971 1800E 4-Speed