SCOTTISH companies are facing major recruitment difficulties and remain wary of investing because of Brexit, which is impeding their ability to compete on the international stage, a survey shows.

And confidence among manufacturers fell in the first quarter at the fastest pace since 2012, according to the survey published today by Scottish Chambers of Commerce in conjunction with the University of Strathclyde’s Fraser of Allander Institute.

Scottish Chambers says the survey indicates the health of the Scottish economy “weakened considerably” in the first quarter.

Across construction, financial and business services, manufacturing, retail and wholesale, and tourism, large proportions of firms reported recruitment difficulties.

Around half of tourism players and 47% of manufacturers engaged in hiring staff reported recruitment difficulties. The corresponding percentages for construction, and retail and wholesale were 42% and 38%, both up from the previous quarter. In financial and business services, hiring difficulties were flagged by 36% of firms in recruitment mode.

The survey shows a sharp decline in export orders for manufacturers in the first quarter, even steeper than the drop in the previous three months. Manufacturers’ orders from within Scotland and from the rest of the UK showed further falls in the first quarter.

Manufacturers’ overall capital investment declined during the first quarter, having risen only marginally in the preceding three months. And this sector also reduced investment in training. Tourism sector players meanwhile cut capital investment sharply.

There was a sharp slowdown in growth of capital investment in financial and business services, and retail and wholesale, according to the survey. And capital investment was flat in the construction sector in the first quarter, having fallen slightly in the preceding three months.

Professor Graeme Roy, director of Fraser of Allander, said: “The lack of clarity about the UK’s terms of exit from the EU continues to cast a shadow over day-to-day decision-making, with businesses clearly struggling to make long-term plans in such times.”

The survey flags cost pressures for Scottish companies. These include sharp rises in labour costs, with big pay rises in retail and wholesale, and construction.

Scottish Chambers president Tim Allan said: “There is an immediate need to solve the Brexit conundrum, which is constraining Scotland’s ability to compete on the world stage. We see this evidenced in the decline in business confidence, the growing difficulties in recruitment and challenges in exporting.”

He warned investment restraint would “do nothing to solve Scotland’s ongoing productivity challenge”. And he flagged a need for investment in skills and training.

Mr Allan said: “With the growing effects of an uncertain world economy and the fog of Brexit hanging over UK business, key Scottish industrial sectors have experienced a slowdown in investment as business costs and Brexit preparations take top priority.

“The prospect of a no-deal Brexit has undoubtedly hit business confidence in the first quarter of the year. Companies in Scotland are caught in a pincer movement of business challenges. On the one hand, businesses are faced with increased cost pressures such as rising costs due to currency weakness and higher wages, and on the other they are hit by the political turmoil that is being caused by the ongoing uncertainty of our future relationship with the EU.”

The survey indicated some resilience of activity levels for Scottish companies, in spite of Brexit.

Growth of sales revenue continued at a steady pace in financial and business services, and construction. But Scottish manufacturers’ sales revenues stagnated in the first quarter. Sales revenues grew at a marginal pace in wholesale and retail. The tourism sector recorded a sharp year-on-year fall in visitor numbers from other EU countries in the first quarter.