Scots engineers showing cautious optimism as exports drive rebound

Rising domestic and export orders have pushed optimism among Scottish engineering firms to its highest level in 12 years, according to a report published today.

Order intake and output volumes have both increased significantly, leading to a "healthy" rise in employment numbers and hours of overtime, Scottish Engineering's quarterly review showed.

But the trade body warned that rising raw material costs and higher utility prices had squeezed profit margins in the three months to September.

Today's upbeat soundings come in sharp contrast to Wednesday's figures from the Chartered Institute of Purchasing and Supply, which showed a sharp fall in new orders for the UK as a whole during August.

Peter Hughes, chief executive of Scottish Engineering, said firms north of the Border had been taking steps to make their businesses run more efficiently.

He pointed to the success of projects run by the Scottish Manufacturing Advisory Service (SMAS) and of knowledge transfer partnerships with universities and colleges, which he said had been particularly well-received in Scotland.

Hughes added: "We also have big companies like Aggreko, Clyde Blowers and Weir that are doing very well and that filters down to smaller firms through subcontracts. We also have lots of companies benefiting from the weak pound against the dollar, which has boosted exports."

Hughes said the survey contained some of the best data he had seen in about 12 years and that the optimism was borne out by his visits to the body's 400 or so members around Scotland.

Writing in the report, William Dowson, the Bank of England's agent for Scotland, said: "The UK economy needs to rebalance towards net exports and Scotland's businesses, including those in the manufacturing engineering sector, can and are playing their part in helping achieve that.

"Spare capacity in companies and significant slack in the labour market - where there are around a million more people out of work - is putting downward pressure on both price and wage inflation."

Despite the economy growing during the past three quarters, Dowson warned there would not be "plain sailing ahead".

He argued that, although business and household confidence had recovered, both measures had "softened" recently.

Dowson warned: "The passage of recovery is likely to be choppy."

Hughes explained that the next step for the Scottish engineering sector - following on from the work done with universities and SMAS in the past decade - was diversification and expansion into growth areas.

He highlighted the work being done by Fife-based Burntisland Fabrications in building on its roots in the oil and gas industry to take advantage of the need for towers in the burgeoning offshore wind sector.

Hughes added: "I've analysed these figures according to whether they're large, medium or small businesses and - with the exception of the metal manufacturers' sector - these are some of the best numbers we've had in a long time."