Engineering firms cutting jobs as oil price bites

The collapse in capital expenditure from oil companies and other global uncertainties hit Scotland’s engineering sector hard over the last three months, forcing firms to cut jobs and scale back production.

Figures show the North Sea oil industry revenues last year were the lowest since 1998. Picture: Getty

Trading conditions for the engineering sector have been adversely affected by a number of factors over the last three months, according to the latest quarterly review of the industry published by Scottish Engineering today. The support group reports that orders, output volume and staffing levels have all fallen due to a combination of global forces.

Its report cited the decline in China’s industrial growth, continued hardship in the eurozone and Russia, and the impact of reduced oil prices.

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Order intake in both the export and domestic markets has dipped into negative territory, in contrast to the strong positive figures recorded in the last quarter of 2014.

Similarly, staffing levels which had been growing for a number of years, declined in the last quarter, as did the amount of overtime being worked.

Bryan Buchan, chief executive of Scottish Engineering, said: “We are experiencing an immediate and unfortunate effect in demand for those companies engaged in the very diverse supply chain for oil and gas. This has had a direct effect by reducing staffing levels, cutting overtime and impacting adversely on overall optimism throughout the industry.”

Export orders in general, and UK orders, both slipped into negative figures. Forecasts for the next three months remain negative in UK orders, although firms are more optimistic in export markets were a very small balance of respondents expected growth.

But the wider optimism reading across the industry has become negative for the first time in two and a half years, with only the electronics sector recording positive figures.

While the staffing levels in general have become negative, small companies managed to remain positive and predictions for the three months ahead are for a return to a positive situation.

Recent figures showed the North Sea oil industry revenues last year were the lowest since 1998.

Investment rose due to rising costs trade body Oil 7 Gas UK predicted a slump in expenditure after firms operating in the basin suffered a negative cash-flow of £5.3bn, the worst since the 1970s.

However, the wider UK economy stands to benefit from the lower oil price as consumers enjoy a boost to their spending power after years of austerity.

The CBI yesterday forecast the UK economy will gather pace again this year after slowing from last summer’s peak.

It came after official figures last week confirmed that UK GDP growth slowed to 0.5 per cent in the final quarter of 2014.

The CBI reported slightly slower private sector expansion in the three months to February, but said the rate of growth was “strong” with a positive balance of 19 per cent. The overall outlook for the next quarter is positive, with growth expected to rise further.

Buchan said: “It is to be hoped that the effects of the lower Consumer Price Index [inflation] created by lower fuel and food prices together with lower borrowing costs will provide a stimulus to the economy which will ultimately feed through to our industry.”