Although the leading business survey shows that confidence and trading conditions have improved slightly among Scottish firms, it remains at a relatively low base.

The Scottish Chambers of Commerce’s Quarterly Economic Indicator also reports continuing investment and recruitment challenges alongside increasing concern from taxation.

Scotland’s largest business network is now calling upon government north and south of the border to deliver a long-term economic plan, which supports a just transition, address skills shortages and unlocks investment across the country.

Taxation overtook inflation as the leading concern, while fears over competition saw the largest increase (40%) compared to the previous quarter (30%).

Stephen Leckie, President of the Scottish Chambers of Commerce said: “Taxation continues to concern firms, to the extent that the issue has overtaken inflation as the leading concern.

“This is having a major impact in attracting and retaining talent in Scotland, contributing to the significant labour challenges many businesses are already experiencing. Divergence on personal taxation has exacerbated the issue.

“Businesses will be looking to both the Scottish and UK government to set out longterm plans to address the current state of taxation which is impacting growth, investment and talent.”

Recruitment difficulties increased from 47% to 55% compared to the last quarter, largely driven by challenges across the retail and tourism sectors. Labour costs are impacting three quarters of firms.

Mr Leckie added: “Our report shows that over half of Scottish businesses are continuing to experience significant costs and challenges with attracting and retaining the talent they need.

“More restrictive changes to the immigration system made earlier this year, the increase in the national minimum wage, and skills shortages, are all adding pressure on employers.

“The UK Government should address this by introducing a skilled migration strategy which is tailored to the needs of the Scottish economy and restore our reputation as a welcoming and open destination for international students to study, live and work.”

Q2 saw significant improvement in terms of cashflow and profits for firms - particularly profits - with growth on balance recorded for both trends.

Mr Leckie warned: “Our latest survey indicates generally improving business conditions across the economy, albeit significant challenges continue to persist which are limiting the ceiling on potential growth and investment.

“The impetus to deliver a credible plan for sustainable growth lies with both the Scottish and UK Government. Now must be the moment to focus on long-term solutions to tackle poor productivity and create an environment for business investment to accelerate.

“The first step is engaging with businesses in Scotland and across the UK, to instil confidence in a new partnership between government and the private sector which is ready to propel our economy to growth and identify how initiatives such as the National Wealth Fund will support Scottish business.”

The report highlighted that although around four in 10 firms are still holding back on investment, that number was slightly down on the previous quarter.

Mr Leckie commented: “It’s positive that the survey results are beginning to see a reversal in the consistent trend of frozen investment. Without unlocking investment, firms cannot power the growth the economy needs and which government is relying on to grow the public finances.

“Significant cost pressures, trade barriers and skills shortages, are critical factors to address if we are to see investment across growth sectors such as AI and green technologies.

“To support a just transition, the oil and gas sector urgently needs action and a plan that will give them the confidence to unlock investment worth hundreds of millions which is currently on hold due to uncertainty over the UK Government’s commitment to the sector.”

Full report here.