Scottish companies have reported a rise in domestic sales and confidence for the second quarter, with an unleashing of pent-up demand as coronavirus lockdown measures were eased, but exports dropped following the UK’s European single-market exit.

The mixed picture, which also includes signs of major challenges on the employment front, is revealed today in the latest survey of business activity from Scottish Chambers of Commerce and the University of Strathclyde’s Fraser of Allander Institute.

Laying out the broadly based export troubles, Scottish Chambers says: “Covid-19 disruption and Brexit fallout has resulted in trading difficulties for businesses in services, manufacturing and retail as evidenced by falls in export sales and orders across these sectors.”

The UK left the single market on December 31 last year, at the end of a transition period which followed the country’s technical Brexit on January 31, 2020.

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Mairi Spowage, director of Fraser of Allander, said: “The dislocation in global trade was significant due to the pandemic. However, we also know that the end of the EU transition period has caused significant issues for manufacturers and others trying to rebuild these supply chains since the start of this year. This chimes with today’s survey results, which show significant negative impacts on exports.”

Ms Spowage also highlighted the inevitability of calls from some sectors for “much more extensive business support”, given the recent announcement of a delay to fuller easing of restrictions.

She added: “Practical policy measures to help these businesses survive through the winter are likely to be needed.”

Scottish Chambers highlights the fact that all sectors covered by the survey have reported “substantial rises in confidence and domestic sales, owing to the easing of general and domestic travel lockdown restrictions”.

It says: “Most results are positive for the first time in over a year, albeit from historically low bases.”

The survey covers the construction, financial and business services, manufacturing, retail and wholesale, and tourism sectors.

However, while noting all sectors have positive expectations for the third quarter, likely boosted by anticipated further easing of coronavirus-related restrictions, Scottish Chambers highlights companies’ “caution” when it comes to investment and staffing.

Flagging additional challenges with the planned ending of the UK Government’s coronavirus job retention scheme in September, Scottish Chambers says: “While firms are optimistic about sales revenue, they are more cautious around investment and staff levels with most firms envisaging no change to these [in the coming quarter].”

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It sounds this note of caution even though the employment picture improved in the second quarter and a net balance of companies across sectors surveyed project a rise in staffing in the coming three months. Scottish Chambers focuses on the fact, however, that a majority of companies across sectors forecast no or little change in employment levels in the third quarter.

The business organisation says of the second-quarter picture: “Most sectors saw a slight increase in employment, apart from retail, which saw no change over the quarter.”

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Mulling projections, it adds: “Most firms, across all sectors, expect little change in Q3 which could result in sluggish jobs growth, with further challenges expected as the furlough scheme is withdrawn.”

And Scottish Chambers president Tim Allan characterised recovery as a “marathon”, as opposed to a “sprint”.

Mr Allan also highlights major challenges for towns and city centres “as more people work from home and more flexibly” on an ongoing basis.

And he underlined difficulties facing tourism and international travel, from “confusing and burdensome” regulations and also a tightening of skilled labour supply, underlining a need for continued financial support for this sector.

Mr Allan said: “The success of the vaccine rollout has enabled the easing of restrictions and the gradual reopening of the economy, unleashing pent-up demand in the economy. This has allowed some sectors to rebound more quickly than others, however, the route to economic recovery will be a marathon, not a sprint.

“It’s clear that concerns remain around the ongoing impact of Covid-19 as businesses grapple with huge uncertainties over what the economy will look like post-pandemic. Towns and city centres face new challenges as more people work from home and more flexibly, impacting on footfall and changes to consumer behaviour. The needs of employers and employees alike need to be finely balanced as we shape the recovery of our city centres, which will impact on a wide range of sectors and supply chains.”

He added: “Equally, sectors such as tourism and international travel, which continue to operate with severe restrictions, are having to adjust to increased domestic demand, a simultaneous fall in international travel and a tightening supply of skilled labour. The sector needs continued financial support and greater clarity on when confusing and burdensome travel regulations will end, allowing greater numbers of international visitors to return.”

Ms Spowage observed “the recovery in the Scottish economy is definitely under way” and highlighted headway on the back of “the incredible progress of the vaccine programme”.

However, she added: “Recent announcements of the delay to the restrictions roadmap will lead to calls from some sectors that there should [be] much more extensive business support to get them through to a position where they can properly operate.”

Scottish Chambers also flags building worries among companies about inflation. It says: “All sectors have recorded increases in concern over inflation, which may escalate as more consumers spend savings accumulated over the last 16 months and create uncertainty for business in terms of their costs and prices.”

Looking ahead, Ms Spowage said: “With the progress of second doses being well on track, policymakers are starting to signal a change in the months to come in the way they manage any future outbreaks. Businesses who have been under the highest level of restrictions over the last 18 months will no doubt welcome this shift when it is safe to do so.”