POLITICAL uncertainty is holding back business, the Royal Bank of Scotland claims.

New analysis by the lender found the private-sector economy experienced just “fractional” growth in August and is “close to stagnation”.

Order book volumes are said to have fallen into decline and the drop in workforce numbers has gathered pace since July, while inflationary pressures remain.

“Political and economic uncertainty” are said to be major factors and business confidence has weakened to the lowest level in over three years.

Across the UK, only Northern Ireland has a weaker outlook than Scotland, the bank said.

Overall sentiment is at the second lowest level since the Royal Bank of Scotland (RBS) Business Activity Index began in July 2012.

The lowest ever recorded was in the month following the Brexit referendum.

Malcolm Buchanan, chair of the Scotland Board at RBS, warned managers do not expect conditions to improve any time soon.

He said: “The Scottish private sector remained close to stagnation in August, with only fractional growth signalled by the headline Business Activity Index.

“The manufacturing sector remained the main source of weakness, although the downturn eased since July. Meanwhile, activity growth in the service sector slipped to a marginal pace.

“Latest data highlighted a fall in new orders following two months of growth, whilst further evidence spare capacity was reflected in employment as firms continued to shed jobs, with the fall in workforce numbers accelerating from July.

He continued: “Political uncertainty continued to weigh down expectations, with business confidence the weakest since July 2016. The level of positive sentiment in Scotland was the second-lowest across the 12 monitored UK areas, with only Northern Ireland holding a weaker outlook.

“Overall, the forward-looking components of the survey suggest firms are expecting further challenging times ahead.”

Firms passed on part of their higher input costs by increasing selling prices last month. The rate of output price inflation accelerated to the fastest in three months, but was “modest” overall.