Business confidence in Scotland has risen over the past year, but remains the lowest in the UK, according to a new report compiled by ICAEW/Grant Thornton.

Capital investment annual growth has slowed to 2.3 per cent over the past 12 months, down from 3.9 per cent at the same time in 2014, according to the report.

Businesses have also suggested that they may lower their investment spending by 0.4 per cent over the coming year.

ICAEW Scotland president Andrew Hewett said there was “still a degree of caution in the air” and firms remain concerned about skills shortages and increasing competition in the marketplace.

Mr Hewett added: “While last year’s referendum and the recent general election are now behind us, the Holyrood elections are still to come and this - along with uncertainty about the potential impact of a vote in favour of leaving the EU - seems to be impacting on optimism.

“Many firms seem to be adopting a ‘wait and see’ approach when it comes to decisions on spending, for example, so it is possible that we will see a similar degree of caution for some time to come.”

Grant Thornton UK’s managing partner in Scotland, Kevin Engel, said: “It is encouraging to see that business confidence in Scotland has increased more this quarter, than elsewhere in the UK.

“With sales predicted to rise and growth expected to stabilise within the next year, we anticipate fewer insolvencies. This rise in optimism is perhaps also in part a reflection of recent high profile investments in the oil and gas industry and suggestions of a recovery in the sector by 2017.

“However, it is important to acknowledge that Scotland remains the least confident part of the country and not to forget the challenges that many businesses continue to face.”