Scots industry facing a return to the dark days of the early 1980s

Published on Tuesday 21 October 2008 22:25

INDUSTRY in Scotland is facing the bleak prospect of a return to the dark days of the early 1980s as the looming recession tightens its grip on the country.

According to CBI Scotland's latest industrial trends survey, firms are planning the largest reduction in investment in plant and machinery for 28 years.

The survey, published yesterday, found that planned investment in buildings is forecast to fall at the second-fastest rate since the early 1980s.

And it showed that problems accessing finance and uncertainty over future orders are restricting companies' growth to a level not seen for almost three decades.

The findings in Scotland were part of a UK-wide survey which recorded the sharpest single-quarter fall in manufacturing confidence since 1980.

The UK quarterly business confidence index fell to minus 60 per cent in October from minus 40 per cent in July – the weakest reading since the minus 70 per cent of July 1980, the worst of the early 1980s recession.

North of the Border, the survey found that domestic orders fell sharply over the past three months and production fell "considerably", though by less than expected.

Unit costs continued to rise, although this is expected to ease with the global slowdown.

Scottish firms reduced their headcount marginally for the third consecutive quarter, but job losses were much less than had been expected.

But the survey found that companies expected the situation to worsen over the next three months, predicting more dramatic cuts.

Iain McMillan, director of CBI Scotland, said: "Firms are scaling back their plans for capital investment and hiring staff as they attempt to navigate the choppiest economic waters they have faced in many years."

The publication of the survey coincided with an economic summit – attended by First Minister Alex Salmond and Scottish Secretary Jim Murphy – aimed at agreeing measure to help the economy.

McMillan yesterday warned that Labour at Westminster and the SNP at Holyrood should not be "wasting energy in endless bickering over the constitution".

CBI's predictions that Scotland will return to a situation last experienced in 1980 will strike fear into the hearts of many business leaders.

At that time, unemployment was nearing its peak of three million

The summer of 1980 saw the closure of factories like the Singer sewing machine plant at Clydebank, with the loss of thousands of jobs.

Today, manufacturing accounts for around 15 per cent of Scotland's GDP – a smaller proportion than three decades ago.

But the survey indicates that the predicted recession could still have a significant impact north of the Border in terms of output and employment.

Michael Saunders of Citigroup said: "We suspect that the CBI survey is the first of many extremely gloomy data readings for quarter four that are likely to emerge in coming weeks."

Howard Archer, chief economist for Global Insight, warned that the survey pointed to a "prolonged and deep recession". He said: "The October CBI industrial trends survey is quite simply terrible."

He added: "It is blatantly obvious that the manufacturing sector is already firmly in recession even if the overall economy hasn't officially got there yet."