THE Scottish economy is “running on fumes” as the protracted uncertainty over Brexit continues to cause firms to put business investment on hold, a key survey has found.

And a majority of firms are continuing to see cost rises because of skills shortages and sterling weakness sparked by the Brexit vote three years ago, which has pushed up the price of raw materials.

The latest Scottish Chambers of Commerce (SCC) Quarterly Economic Indicator, published today, lays bare the “chaos” caused by Brexit “dithering” by the UK Government, which has so far failed to secure the support of Parliament for proposals rubber-stamping the departure from the EU.

READ MORE: ‘Serious implications’ for Scotland from threat to immigration, Fraser of Allander warns

The prospect of a no-deal Brexit – opposed by SCC and large swathes of the business community – also looks to have increased, with the front runner in the race to become leader of the Conservative Party, and the next Prime Minister, Boris Johnson, signalling the UK should not be afraid to leave without striking an agreement with the EU.

Rival Jeremy Hunt is also prepared to leave without a deal, and angered business groups earlier this week when he said would tell companies which fail because of no-deal Brexit that it had been a price worth paying.

Tim Allan, president of SCC, said: “Businesses are weighing the costs of the chaos caused by more dithering over Brexit and the burden is severe. Our members are crying out for the return of some sanity as they undertake the important role of creating jobs and paying taxes.

“Whoever the next Prime Minister will be, they must take brisk action to unlock investment and instil confidence back into the UK economy. Scottish businesses need to see steps being taken to avoid a disorderly Brexit and a responsible consensus reached as soon as possible on the Brexit process with the European Union.”

READ MORE: Warning: No-deal risks have ‘certainly increased’

The Chambers survey, which gauged sentiment among 350 firms for the second quarter, found that wages increased in every sector apart from retail, signalling that firms are having to pay more to retain talent as the supply of skilled workers eases. Net migration from the EU has steadily fallen since the Brexit vote in June 2016, putting pressure on sectors reliant on migrant workers from the bloc.

The SCC notes the recruitment difficulties are being especially felt in the tourism industry. While more than two-thirds of tourism firms said they are actively trying to hire staff, more than half of these are experiencing recruitment difficulties. More than two-thirds of firms – 70 per cent – reported increased wages, a historical high for the survey.

Away from wages, firms are facing higher costs because of pressure on raw materials prices and Brexit preparations, the survey said. SCC found 64% of manufacturing firms and 52% of construction companies ranked rising raw materials prices as their top cost pressure.

Manufacturing sentiment was found to have recovered to some extent from the first quarter, when companies reported their sharpest drop in optimism since the third quarter of 2012. Optimism recovered from a negative net balance of -20% in the first quarter to a positive net balance of 12%, though total orders remained weak. In addition, while 80% of manufacturers are attempting to recruit, more than half (53%) of these reported recruitment difficulties, a six point rise on the previous quarter.

The SCC found that business investment has been put on hold in the majority of sectors, with the expectation this will continue into the next quarter. Mr Allan said firms “remain extra cautious about investment which is bedding in risk that the Scottish economy will suffer in the medium and long term”.

Despite the challenges, SCC said Scottish firms are continuing to show resilience. But while overall confidence made a slight recovery from the first quarter, when the UK faced a “cliff-edge Brexit”, confidence was generally lower than at the same period last year.

Mr Allan said: “Since the initial cliff edge Brexit of 29th of March, the pressure on firms has eased slightly but the underlying trends point to an economy running on fumes.

“All are desperate for some kind of resolution to Brexit before the October 31st deadline.”