BUSINESS optimism and output in Scotland have fallen to a three-year low according to the latest Business Trends report.

Hiring intentions are at a two-year low, according to the report by business adviser BDO, which calls on the chancellor to activate an immediate three-pronged investment strategy.

It says: “While some of the gloom can be put down to the uncertainty surrounding the EU referendum vote, these figures have been in decline for a year indicating more deep-rooted problems with the economy.” It comes as the Bank of England stands ready to cut interest rates to 0.25 per cent at its meeting this week.

The BDO business output index, which reflects companies’ experience of orders for the three months ahead, now sits at 99.0, down from 104.1 in June 2015. Business optimism ,which predicts growth six months ahead, fell to 98.9, a full five points below its level a year ago. Manufacturing continues to have the gloomiest outlook, with its optimism sub-index slumping to 83.8.

Uncertainty has also contributed to the continuing slowing rate of job creation. The employment index, indicating firms’ intentions to hire, has now dropped to 101.4 from 109.1 a year ago.

Martin Gill, Scottish head of BDO, said: “There is little doubt that uncertainty prompted by Brexit has resulted in disrupted investment in the Scottish economy, but the signs of a slowdown were already showing ahead of the decision. The latest output and optimism figures are down considerably on June 2015 when the EU referendum wasn’t even on the agenda.”

Mr Gill added: “Of course negativity breeds negativity and businesses need to keep their heads and understand that while the situation at the moment is unclear, they are unlikely to notice any difference in their day to day operations for some considerable time to come.

“That doesn’t mean that businesses shouldn’t plan for the worst but hope for the best, but there is a degree of hysteria being generated at present which, ultimately, is unhelpful.”

BDO’s three-point Brexit plan calls on chancellor George Osborne to take advantage of cheap borrowing costs to invest in business-friendly infrastructure in regions traditionally strong in manufacturing; address the productivity puzzle by incentivising investment in training and skills; and use QE to lower borrowing costs further and encourage businesses to invest.

Mr Gill said: “Continued investment is essential as is growth if the Scottish economy is to come through this relatively unscathed. We are at a crucial moment where we must be sensible in protecting the UK economy. We need a plan of action now that gives businesses the added confidence to progress with investment plans.”

Meanwhile the Bank of Scotland PMI index which measures the private sector economy found a slight return to growth in June following two months of stagnation.

Driving the expansion was a slight rise in new business growth, for the third month in a row.

However, total employment fell further amid another decline of outstanding business.

The seasonally adjusted headline PMI – a single-figure measure of the month-on-month change in combined manufacturing and services output – rose slightly to 50.5 in June, rebounding after posting 49.9 in May. It was only the second upturn in the year to date.

New business levels expanded for the third successive month during June. However, the rate of growth eased since May and was only slight.

The rise in total new work was broad-based across both manufacturers and service providers. Price discounting was cited by Scottish goods producers as one of the main factors behind the increase.

Firms continued to reduce payroll numbers, albeit only slightly, extending the current trend to seven successive months.

Graham Blair, Bank of Scotland’s regional director for SME banking, said: “Growth occurred at a slow pace, after a solid rise in manufacturing production was weighed down by an under-performing service sector. Regardless of this, June’s survey data was the strongest so far in 2016, which will be encouraging news for Scottish firms.”