Hiring surges but clouds on the horizon for engineering sector

Scottish engineering firms added staff at the fastest rate in three years during the third quarter.

Scottish Engineering

Scottish Engineering’s latest quarterly review shows staffing at a net +14 per cent, up from +9 per cent in Q2 and the strongest employment reading since 2023.

It was one of only four indices to improve on the quarter, and the only one not measuring an input decision.

Everything pointing at customer demand fell.

Order intake dropped nine points to +8 per cent, output volume nine points to +11 per cent, and export orders slipped into negative territory at −2 per cent after a brief return to growth.

Overtime recorded the sharpest single move in the survey, collapsing from +16 per cent to +4 per cent, a 12-point fall that suggests firms are converting flexible hours into permanent headcount rather than responding to fresh work.

The recovery that began in late 2025 now looks to have peaked.

Orders, output and exports all reached their high point in Q2 2026 before turning down in Q3, while capacity utilisation at +13 per cent remains below its Q1 reading despite two quarters of improvement.

Beneath the headline figures sits a sharply two-tier picture. Small companies, which make up roughly three-quarters of the 96 respondents, returned nothing above +8% on any index and posted negatives on exports, overtime and capital investment. Medium-sized firms were positive on all ten measures, several substantially so, capacity utilisation at +55 per cent, staffing at +50 per cent, training at +45 per cent.

The gap widens in the forecast with small firms expected to raise UK prices by a net +31 per cent over the next three months, the steepest pricing expectation in the survey, from a flat order book.

Medium firms, the ones with genuine demand behind them, forecast no price movement at all.

On export prices the split repeats, small firms at +15 per cent, medium and large at zero, indicating firms with scale see no room to pass costs on overseas.

Sector-wise, Plant & Machinery recorded the weakest order book in the survey at −13 per cent, alongside zero capital investment and negative optimism, yet hired harder than any other sector at +31 per cent and forecasts a +38 per cent rebound in Q4 orders.

Fabricators did the reverse, posting the strongest order intake at +25 per cent while cutting headcount by a net 25 per cent, then forecasting +25 per cent hiring and a +75% rise in UK prices, the most aggressive pricing expectation recorded.

Members forecast a net +21 per cent order intake for Q4 and a return to +15 per cent on exports, a figure that would reverse three years in which export orders have sat at or below zero.