FEWER Scottish firms believe business interests are being protected or promoted in Brexit negotiations, according to research published today.

The Business in Britain report found just 38 per cent of Scots companies are confident that the UK Government is working to safeguard industry in talks with Brussels.

The figure marks a drop from the 49 per cent recorded previously, while the number of enterprises expressing a lack of confidence has risen ten per cent to 35 per cent.

Around half said their business will be negatively affected if the UK leaves the bloc without a trade deal.

The report cites Brexit as one reason for low levels of confidence amongst Scotland’s businesses.

Weak domestic demand and market uncertainty are cited as key factors.

According to the Bank of Scotland study, which focuses on small to medium sized enterprises, Scots firms have the second lowest confidence rates in the UK.

Only England’s Yorkshire and Humber region was less optimistic.

Business confidence in Scotland – calculated as an average of respondents’ expected sales, orders and profits over the next six months – was down two points at 17 per cent compared with 19 per cent in July 2017.

However, the net balance of firms looking to grow investment in the next six months remained stable at two per cent, the same level as in July 2017.

The share of firms anticipating stronger total exports also remained “positive” at 17 per cent.

More than 1500 firms are included in the twice-yearly study and economic uncertainty was identified as the single greatest risk to companies by 27 per cent of those surveyed – up from 22 per cent in July – with weaker UK demand in second place at 18 per cent.

Seven per cent of businesses expect staff numbers to fall over the next six months, compared with a net balance of eight per cent that expected to add to their headcount in July 2017.

A “relatively high” 43 per cent of Scottish firms continue to report difficulties hiring skilled labour. However, this is a drop of two points on previous findings.

Meanwhile, the number of firms expecting to increase wages decreased by six points to 15 per cent, which the report says suggests companies are taking an “increasingly cautious approach” to pay.

In contrast with Scotland, the North East of England had the highest business confidence level at 38 per cent.

Jane Clark-Hutchison, regional director of the Bank of Scotland, said: “It’s disappointing to see Scottish businesses towards the bottom of the confidence index, but perhaps not unsurprising given the backdrop of economic uncertainty and concern over weak domestic demand.

“While confidence has dropped marginally from July, it’s still broadly in line with the sentiment felt this time last year.

“Encouragingly, Scottish firms remain stoic with their investment and export plans.

“Ultimately, uncertainty is at the front of Scottish businesses’ minds and we will need to see a shift to return to a position of growth.”

Clark-Hutchison went on: “As Brexit negotiations continue to the next phase, we will hopefully see greater clarity which will help businesses to plan carefully and be flexible to see through the next six months and beyond.”