Activity and optimism in Scotland’s engineering industry has increased for the first time in two years as the shock of Brexit has been absorbed by the sector and stability returns to the supply chain.
According to the latest quarterly review published today by Scottish Engineering, there has been an improvement in orders, output and staffing in the final quarter of 2016. It follows seven quarters of negative results up to the nadir of the last report in September when, at six weeks after the EU referendum, the industry reached its gloomiest.
We are seeing stability coming back into our supply chainBryan Buchan
Bryan Buchan, chief executive of Scottish Engineering, said he has been “pleasantly surprised” by the feedback the industry group has received from members in its latest series of regional meetings around the country. Firms from every sub-sector apart from metal and machine shops appear to be experiencing the uplift, albeit from a fairly low base.
“What we have this time around is a much more positive, optimistic view from the majority of people attending,” Buchan said.
“I think we are looking at a trend now where people have come to terms with circumstances post-Brexit. We are seeing stability coming back into our supply chain.”
Today’s survey shows 39 per cent reporting an increase in orders during the last three months, versus 26 per cent with no change and 35 per cent down. The balance of +4 matches the spread on expectations for the coming quarter, with 22 per cent predicting an increase in orders against 18 per cent anticipating a decline.
Scotland is lagging what appears to be a greater rate of growth in the rest of the UK’s manufacturing sector, which is benefiting from the boost to exports as the fall in the value of sterling has made UK products cheaper overseas. Scottish engineering firms do not gain from this to the same extent, though they are getting the knock-on effects from supplying customers down south.
“We are not yet seeing the benefit of the weak pound due to the simple fact that the UK accounts for £48 billion of Scotland’s total exports, compared to £11.6bn to the EU and £15.2bn to the rest of the world, excluding oil and gas,” Buchan said.
“What may provide a benefit to the Scottish engineering manufacturing sector is the decision by the Chancellor in his Autumn Statement to increase spending on infrastructure and productivity. However, that is for the future and our industry needs more orders in the short and medium term.”
Asked about the on-going impact from the downturn in the offshore sector, Buchan noted recent positive developments such as increases in the price of crude and Opec’s decision to cut production for the first time in eight years, which should further support prices.
“I would not like to say that we have bottomed out because I don’t know, but I would say there has been some alleviation in the oil and gas supply chain,” he said.