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Skills shortages are reaching critical levels, according to the latest Quarterly Economic Survey by the British Chambers of Commerce (BCC).

Based on the responses of over 7,000 businesses, the BCC survey shows that growth in the UK economy remains subdued, with almost all services indicators below their pre-EU referendum levels and the strong performance of manufacturers easing slightly in the final quarter of 2017.

However, finding workers with the right skills has become a critical issue for UK businesses, says the report. The percentage of service firms attempting to recruit fell slightly from 52% to 50% in the fourth quarter of 2017. Of those hiring, the percentage reporting recruitment difficulties has risen to 71%, the highest since records began.

The percentage of manufacturers that attempted to recruit in the past three months has decreased from 71% to 66%. Of those, 75% had recruitment difficulties. And of these, skilled manual labour was the leading area of recruitment difficulties (68%) - again, the highest since records began.

Dr Adam Marshall, BCC director general, said: "Labour and skills shortages are set to be the biggest potential drag anchor on business in 2018, since ultimately it is people that make businesses work. Business itself must do more - by training and investing wherever possible in people - but Government must also give firms the confidence to put their livelihoods on the line and go for growth.

"This must be the year employers act rather than just complain on skills, and the year Government delivers clarity, leadership and investment in people and infrastructure. Kick-starting growth, and boosting wages and prosperity for all, depends on this."

Overall, the survey suggests that 2018 will be a challenging year for small businesses. Suren Thiru, BCC head of economics, said: "Looking forward, the UK economy is set to continue on an underwhelming growth trajectory over the near term with uncertainty over the impact of Brexit coupled with high inflation and weak productivity likely to dampen overall economic activity."

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