BUSINESS leaders in Scotland say clarity over Brexit is paramount after an economic study showed slowing investment across a range of sectors and a challenging set of results for the country’s manufacturing sector.

In its latest Quarterly Economic Indicator Survey, Scottish Chambers of Commerce (SCC) said that although the Scottish economy was broadly positive, manufacturing – despite a reasonably strong set of financial results – had posted its first negative result for optimism and business confidence since 2016, driven by rising raw material costs.

It said expectations in the sector for future revenue and investment were both substantially lower than the previous quarter.

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SCC said the survey also noted investment trends generally slowing throughout Q3, with all sectors bar retail experiencing a decline compared to the second quarter.

External pressure was continuing to be a challenge for some key sectors, with construction and manufacturing impacted by the rising cost of raw materials - 63% of manufacturing firms indicated they were a growing cost pressure.

The report showed 21% of firms across the sample reported declining optimism, compared to 15% last quarter, although this still suggested overall positive business confidence.

An increase in overall revenue was reported by 43% of firms, with 17% reporting a drop; 16% reported falling business investment this quarter – across construction, business services, manufacturing and tourism – compared to 11% in Q2

Firms’ future investment expectations were said to be slowing, with 27% looking to increase investment this quarter, compared to 32% in Q2; and investment expectations for Q4 were below average for construction, manufacturing and retail.

Neil Amner of Anderson Strathern, chair of the SCC economic advisory group, said: “Our survey results for the third quarter of 2018 suggest that the Scottish economy continues to be resilient, but firms are becoming cautious as uncertainty grows around the future trading environment with the European Union.

“Investment in Q3 and future expectations of investment are beginning to show signs of slowing across many of the analysed sectors.

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“Although optimism remains relatively strong throughout the national sample, levels of business confidence have also softened relative to the second quarter.

“It’s particularly concerning to see the manufacturing sector report a negative score for optimism.

“This is the first negative score reported since the third quarter of 2016, suggesting that the combination of rising material costs and continued uncertainty around future trading conditions are beginning to affect the confidence of businesses in this sector.”

Professor Graeme Roy, director at the University of Strathclyde’s Fraser of Allander Institute said: “This survey is further clear evidence of the importance of securing a smooth Brexit transition to protect Scotland’s economy.

“Whether you agree or disagree with the decision to leave the EU, it is essential that we have an orderly transition.

“The analysis undertaken by the Chambers of Commerce shows that it is vital that a deal is reached to enable firms to prepare and develop contingency plans. Crashing out of the EU in March next year threatens to severely impact on businesses right across the Scottish economy.”

Amner added: “A recent Chamber of Commerce survey illustrated that 62% of firms across the UK have not conducted a Brexit related risk assessment.

“This figure is higher in Scotland, at 67% of surveyed firms. Furthermore, 21% of firms across the UK intend to cut investment levels if a ‘no-deal’ scenario comes to pass.

“It’s difficult for firms, especially smaller businesses, to prepare without clarity on future arrangements.

“It is critical that the UK Government steps up to the plate to provide the certainty that business needs. Business communities need to see the UK Government working constructively with the whole of the UK and our EU partners to deliver certainty for business.”