SCOTTISH businesses are continuing to struggle with the uncertainty caused by Brexit and confidence is still on a downward trend, according to Scottish Chambers of Commerce (SCC).

However, its quarterly economic indicator showed some firms, particularly in the financial and business services sector, are cautiously optimistic that a positive outcome could begin to restore confidence in the Scottish economy.

The survey – conducted by SCC with the Fraser of Allander Institute – suggests Scotland should avoid a “technical recession”, where two consecutive quarters of negative growth are recorded, when the next official statistics are released later this year.

In construction, it said the balance of firms increasing investment – total, capital and training – all fell into negative territory in the third quarter, with the lowest level of work in progress for six years.

The report showed that confidence dipped in retail and wholesale as revenue trends fell, amid major concerns about domestic issues, such as business rates which were too high, along with online and high street competition. SCC president Tim Allan, who chairs the Scottish Business Advisory Group, said the consequences of a No-Deal Brexit would be “painful” and “long-lasting”.

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He said: “Our research shows that overall business performance has declined in the last year as companies take on board extra uncertainties caused by the tortuous progress of the Brexit process. As the UK faces yet another deadline in the Brexit process, construction and manufacturing have reported severe challenges in terms of future orders, exports and investment.

“Meanwhile companies in sectors including retail and tourism face continued challenges in recruiting people with the right skills as the number of available workers from Europe continues to decline.

“We continue to affirm the view that a disorderly, No-Deal departure from EU will have painful, long lasting consequences for the economy in Scotland and the UK. But we also believe that, if Brexit is not just done but done well, there is significant potential for an upside.”

Allan said uncertainty had undoubtedly stymied corporate investment, and he challenged political leaders unleash the “wall of cash” that has built up: “Deliver a positive outcome to Brexit and the economy will benefit. We believe there is a wall of cash that has been pent up while the process of leaving the EU has unfolded which can and will be unleashed.

“What employers need more than ever is for Scottish and UK governments to hone their focus on the needs of the economy.

“Scotland in particular suffers a long-standing problem of slower economic growth relative to England and poor productivity compared to global peers.

“We urgently need to correct these trends if Scotland is to deliver an inclusive economy that provides the jobs, skills and prosperity for current and future generations.”

Professor Graeme Roy, director at the University of Strathclyde’s Fraser of Allander Institute, added: “Scottish businesses appear to be treading water as they await clarity on the terms of the UK’s exit from the EU … A No-Deal Brexit remains the greatest immediate risk to the Scottish economy. It is misguided to argue that No Deal is better than further delay. A No Deal would not only act as a major economic shock but will do little to curb uncertainty, with the UK’s future relationship with the EU still needing resolved.”