Survey suggests Scottish economy faces challenges ahead

Construction firms reported strong results during the quarter, as did manufacturing businesses

Scotland's economy will continue to grow this year but there are potential challenges ahead, according to a respected business survey.

Scottish Chambers of Commerce's latest quarterly economic indicator has suggested most businesses have a positive outlook for the coming months.

However, firms also highlighted longer-term threats to success.

They included factors such as falling real incomes and rising recruitment problems.

The report, released in collaboration with the University of Strathclyde's Fraser of Allander Institute, covers the key sectors of construction, financial and business services, manufacturing, retail and tourism.

It said construction and manufacturing firms reported strong results during the quarter, with the latter experiencing an increase in staffing levels.

Tourism businesses also suggested there had been an increase in employment, with visitor numbers up over the quarter.

Meanwhile, firms in finance and business services reported a further improvement in sales, with a net balance of firms reporting sales growth at its highest for two years.

However, almost half of retail companies saw a decline in profit levels over the quarter, with increased pressure to raise prices.

More than half said they expected to increase prices over the next three months.

Neil Amner, from Scottish Chambers of Commerce, said the retail sector was "perhaps most exposed" to pressures on household budgets.

He added: "Consumer demand drives around three-quarters of Scotland's economic growth, so unless the recent falls in real earnings are reversed, there is a risk that the impact could spread to the wider economy.

"There is also evidence that the low unemployment rate may be impacting on businesses' ability to recruit the talent they need.

"Those recruitment pressures underline the need for early agreement on the rights of existing EU workers to live and work in the UK and for the UK's future migration policy to be driven by business need."

'Encouraging signs'

Economy Secretary Keith Brown said the report showed "encouraging signs" for Scotland's private sector.

He said: "Our unemployment rate is at a record low, the productivity gap with the UK is closing, we achieved a record breaking year for foreign investment projects in Scotland during 2016, and our economy achieved growth of 0.8%, the highest quarterly rate since 2014.

"While we of course recognise the continuing economic challenges, with Brexit in particular a worrying issue, the Scottish government will continue to use all its powers to grow the economy, including our £500m investment in the Scottish Growth Scheme designed to transform our country's businesses and skills."

A total of 465 firms responded to the survey, which was conducted between 23 May and 12 June.