Scottish Chambers of Commerce: Slowing investment highlights need for Brexit certainty

Slowing investment in the Scottish economy highlights the need for Brexit certainty, the Scottish Chambers of Commerce (SCC) has said.

Publishing the latest SCC Quarterly Economic Indicator Survey for Q3 of 2018, the business body said the Scottish economy was looking “broadly positive”, but there was slowing investment across a range of sectors and a challenging set of results for the manufacturing sector.

Driven by rising costs of raw materials, the manufacturing sector has posted its first negative result for optimism/business confidence since 2016, despite a reasonably strong set of financial results. Expectations in the sector for future revenue and investment both sit substantially lower than for the previous quarter.

The survey has also observed slowing investment trends generally throughout the third quarter, with all sectors bar retail experiencing a decline in investment relative to the second quarter.

The SCC’s survey also shows that external pressure continues to act as a challenge for some key sectors, with construction and manufacturing particularly impacted by the rising cost of raw materials. Almost two-thirds of manufacturing firms indicated that rising raw material prices were acting as a growing cost pressure.

Commenting on the results, Neil Amner of Anderson Strathern, chair of the SCC’s economic advisory group, said: “Our survey results for the third quarter of 2018 suggest that the Scottish economy continues to be resilient, but firms are becoming cautious as uncertainty grows around the future trading environment with the European Union. Investment in Q3 and future expectations of investment are beginning to show signs of slowing across many of the analysed sectors.

“Although optimism remains relatively strong throughout the national sample, levels of business confidence have also softened relative to the second quarter. It’s particularly concerning to see the manufacturing sector report a negative score for optimism. This is the first negative score reported since the third quarter of 2016, suggesting that the combination of rising material costs and continued uncertainty around future trading conditions are beginning to affect the confidence of businesses in this sector.”

Professor Graeme Roy, director at the University of Strathclyde’s Fraser of Allander Institute, added: “This survey is further clear evidence of the importance of securing a smooth Brexit transition to protect Scotland’s economy. Whether you agree or disagree with the decision to leave the EU, it is essential that we have an orderly transition.

“The analysis undertaken by the Chambers of Commerce shows that it is vital that a deal is reached to enable firms to prepare and develop contingency plans. Crashing out of the EU in March next year threatens to severely impact on businesses right across the Scottish economy.”