SCOTLAND’s business performance is being clouded by a fall in the value of real incomes and continuing recruitment challenges, including uncertainty over the future of EU workers in the UK post-Brexit, according to a new report.

The quarterly economic indicator from Scottish Chambers of Commerce (SCC), in conjunction with the University of Strathclyde’s Fraser of Allander Institute, is broadly positive, but includes some start warnings about the potential challenges that lie ahead.

Neil Amner of Anderson Strathern, chair of the SCC’s economic advisory group, said the Scottish economy would continue to grow this year, despite the challenges it faced.

“Performance in the construction sector has improved since the beginning of the year, but concerns remain about the persistent negative trend in contracts from the public sector,” he said. “Manufacturing businesses have again reported strong results, with evidence of a sharp increase in export revenues, possibly as a result of the exchange rate.

“The tourism sector is also looking well set for the summer, whilst key indicators in the financial and business services sector, such as profitability and employment have returned to their best levels for over two years.

“These are all positive signs in line with other recent surveys and data – they indicate that the Scottish economy will continue to grow this year.

“Businesses are, however, also highlighting longer term threats to success from factors such as falling real incomes and rising recruitment problems.

“The retail sector is perhaps most exposed to pressures on household budgets.

“It is therefore worrying that almost half of retail respondents are reporting a fall in revenues and profits – supply chain price rise pressures will compound that issue.”

Amner said that as consumer demand drives around three quarters of Scotland’s economic growth, there was a risk that unless recent falls in real earning were reversed, the impact could spread to the wider economy.

He added that the low unemployment rate could be impacting on the abilities of businesses to recruit talent – which highlighted the need for an early deal on EU workers’ rights.

“Recruitment difficulties are growing across almost all sectors of the economy and we are seeing businesses increase their investment in staff training, possibly to improve the skills of existing staff or to bring new recruits up to speed, who may not have all the skills that the business needs,” he said.

“Those recruitment pressures, underline the need for early agreement on the rights of existing EU workers to live and work in the UK and for the UK’s future migration policy to be driven by business need.

“We are continuing to hear anecdotal evidence from businesses of a slow but steady drift of EU workers out of the UK. For Scotland, that has to stop if our current recruitment problems are to be reversed.”

Although he said the survey results were positive, they were not wildly so. “Corporate training investments are being made in the context of tight margins and uncertain times, exposing the punitive nature of the Scottish operation of the Apprenticeship Levy for those paying it.

It is time for governments at all levels to begin planning for the kind of country we want Scotland to be,” he added.