Factory confidence crashes as demand drops and costs climb

Published on Wednesday 23 July 2008 21:13

BUSINESS confidence among Scottish manufacturers has slumped to its lowest level for almost three decades, a survey has revealed.

Confidence north of the Border is at a 28-year low, driven downwards by rising costs combined with expectations of a slowdown, according to the latest Scottish Industrial Trends Survey published by CBI Scotland.

But the report, published yesterday, warns that Scottish manufacturers face a more difficult quarter ahead, with domestic orders, output and employment all expected to fall sharply over the coming three months.

The conclusions of the Scottish survey largely mirrored the overall UK trends, where it also emerged that manufacturers were experiencing their worst price pressure for nearly 30 years.

On both sides of the Border, the survey showed that average unit costs have risen at the fastest rate since 1980.

In response, firms are raising the prices of their goods, in an attempt to restore battered profit margins. Domestic prices have risen markedly over the past two quarters, while export prices have risen more rapidly – in Scotland in the latest quarter at the fastest rate since October 2004.

However, the rate of decline in domestic orders has been slowing in Scotland, in contrast to the UK as a whole, where it has accelerated.

Iain McMillan, director of CBI Scotland, said: "Until now, our industrial trends surveys have shown Scotland's manufacturing sector to have performed well over the past few years.

"This latest set of results, however, is very disappointing but perhaps not so surprising in the current economic climate."

He added: "These results reveal that rising costs and declining demand are causing business confidence in the sector to sharply deteriorate.

|Hopefully these tough conditions will prove to be short-lived. However, it does reinforce the need for government, at every level, to promote policies that help build our economy and avoid policies that damage our competitiveness and the image of Scotland as a place to do business."

On a more positive note, the outlook for export orders over the coming three months is less pessimistic and these are expected to fall only modestly. However, firms are now far more concerned that political and economic conditions abroad will constrain export orders over the coming quarter, and Scottish manufacturers are less optimistic about export prospects for the year ahead.