Scottish businesses hampered and weakened by ‘Brexit cloud’

The prospect of a no-deal Brexit has taken its toll on the confidence of Scottish businesses and is “hampering” the country’s ability to compete internationally, a report has warned.

Businesses are struggling amid a 'Brexit cloud'. Picture: Getty Images

Uncertainty over the UK’s departure from the EU has caused the health of the Scottish economy to “weaken considerably” in the first few months of this year, according to the Scottish Chambers of Commerce.

In its new analysis with the Fraser of Allander Institute, the SCC has found that although businesses are still “relatively resilient”, the “cloud of Brexit” is making it difficult for firms to consider long-term plans.

Earlier this month, an extension was agreed with the EU to extend Article 50 until October 31, unless the UK is able to agree on a process for withdrawal before then.

Tim Allan, president of the Scottish Chambers of Commerce, said: “The prospect of a no-deal Brexit has undoubtedly taken a toll on business confidence in Scotland in the first quarter of 2019. Companies in Scotland are caught in a pincer movement of business challenges.

“On one hand, businesses are faced with increased cost pressures due to currency weakness and higher wages, and on the other they are hit by the dampening effects of political turmoil caused by the ongoing uncertainty of our future relationship with the EU.

“There is an immediate urgency to deal with Brexit, which is hampering our ability to compete on the international stage. We see this borne out in the decline in confidence, difficulties in recruitment and challenges in exporting.

“Furthermore, restraint on plans to invest will do nothing to solve Scotland’s ongoing productivity challenge which requires sustained levels of investment in skills and training if we are to see the shift the economy needs.”

The SCC’s quarterly economic indicator is Scotland’s longest running survey of its kind, operating since 1990. Its latest findings come just two days after it was revealed Scotland’s unemployment figures had reached a record low at 3.3 per cent.

Mr Allan added: “Our survey has shown some real areas of robustness which highlights the resilience of Scottish businesses and their resolve to stay focused on creating jobs and paying taxes to fund vital public services. But the pressure on Scottish firms is rising, with the prospect of increased costs due to inflation, currency volatility, Brexit preparations and the prospect of increased taxation remaining as top concerns for all sectors.”

Professor Graeme Roy, director of the Fraser of Allander Institute, said: “The lack of clarity about the UK’s terms of exit from the EU continues to cast a shadow over day-to-day decision making, with businesses clearly struggling to make long-term plans in such times. Weak business investment has been a feature of recent times, and this latest survey shows that firms are becoming even more reluctant to make investment decisions at this present time. “This is an unwelcome sign given the key role that investment plays in boosting productivity.”