CONTINUING Brexit uncertainty is “unsettling” Scottish manufacturers, the director of the Confederation of British Industry in Scotland has declared, as the sector reported its first fall in export orders for two years.

Manufacturers in Scotland saw a decline in both export and domestic orders in the third quarter, the latest CBI Scotland industrial trends survey has revealed. While the report signalled that export orders are expected to return to growth in the current quarter, it highlighted political and economic conditions abroad as the factor most likely to limit sales overseas in the three months ahead. Concern over political and economic conditions abroad was at its highest since 1983.

Meantime, domestic orders are expected to continue falling.

Tracy Black, director of CBI Scotland, said: “With continued pessimism about Scotland’s export prospects and an alarming number of firms citing concerns over political and economic conditions abroad, it’s clear that continued uncertainty over Brexit is unsettling Scottish manufacturers.

“With the clock ticking as negotiations enter the critical final phase, we urgently need compromise and pragmatism from all sides to calm nerves across an important sector for the Scottish economy.”

In what CBI Scotland said had been a “sobering” quarter for the manufacturing sector, business optimism was found to have deteriorated at its fastest pace since July 2016. Its report found that Scottish manufacturers expect to cut back investment in buildings and plant and machinery over the next year.

Respondents also signalled plans to scale back capital expenditure on product and process innovation, though investment on training and retraining is expected to remain at current levels. Employment growth was down sharply on the second quarter while hiring intentions are expected to remain flat over the next three months, reflecting the weakest level of intention since October 2016.

Ms Black added: “Weaker employment growth paired with a deterioration in investment intentions also points to a situation where firms are wary of committing to growing and investing in the current climate – something we desperately need to address Scotland’s productivity challenge.”

Meanwhile, the latest CBI industrial trends survey found orders at UK manufacturers tumbled at their fastest pace for three years, as Brexit uncertainty hammered business optimism and undermined investment intentions in the three months to October. The percentage of manufacturers reporting an increase in orders in the third quarter (21 per cent) was exceeded by the proportion recording a fall (28%).

With domestic and export orders both falling, business optimism among manufacturers tumbled at its fastest rate since the Brexit vote in 2016.

The survey found that 25% of respondents felt less optimistic about the general business situation than three months ago, compared with 10% of firms saying they are more optimistic.

Optimism over export prospects for the year ahead deteriorated at its steepest pace since 2012, found the report, which noted that Brexit uncertainty continues to hang over investment intentions.

The survey found that planned spending by UK manufacturers on plant and machinery is expected to be cut back in the year ahead at its fastest pace since July 2009.

The CBI noted skills shortages were “starting to bite”. It found concern that access to workers is likely to constrain investment remained at a “survey high”. And it concluded that fears that access to skilled labour is likely to limit output over the next quarter reached their highest level in more than 40 years.

Samuel Tombs, chief economist at Pantheon Macroeconomics, said: “A no-deal Brexit which restricted immigration would only make it harder to recruit appropriately qualified staff.”