Uncertainty tightens screw for Scottish engineering

The Scottish engineering sector remained flat in the second quarter compared to the first as it continues to battle macroeconomic factors, but there is some cause for optimism, according to research published today.

Trade body Scottish Engineering said the sector faces an 'almost perfect storm'. Picture: TSPL

Scottish Engineering (SE) said in its latest quarterly review that order intake and output volume are down for small and medium-sized businesses, while “there is no movement in capital investment and prices continue to be squeezed”.

Bryan Buchan, chief executive of the trade body, told The Scotsman that the sector has been facing an “almost perfect storm”, from a range of economic headwinds.

SE found that for small firms and medium-sized companies, order intake dropped by 44 per cent and 42 per cent respectively this quarter, reflected in output volume being down by 44 per cent and 32 per cent down respectively.

Buchan said: “It is fair to say that our sector as a whole is suffering from stagnation, borne out of the effects of the long-term drop in oil prices coupled to a global economic retrenchment, with very low growth other than in China and India.

“We appear to be marking time in terms of capital investment, partly due to the imminent EU referendum.”

He said: “Business thrives on certainty and tends to have difficulty with uncertainty, and while it’s clear to businesses what the situation will be for their trade if we remain in Europe, it’s less clear if we’re out, so hat has had an effect of suppressing some activity.”

The Scottish engineering sector “is little different to the UK economy as a whole where growth slowed in Q1 and is expected to do so further in Q2”, he continued. “If anything, Scotland’s slightly worse than the rest of the UK”.

However, Buchan saw that “some positives” have emerged for the sector, highlighting strong performances in defence, heavy engineering, fabrication and electricals.

“Although CPI inflation remains well below the 2 per cent target and the bank rate is held again at 0.5 per cent, there is optimism that movement in cost growth will come through next year.

“More immediately, there is some cheer… to see oil prices breach the $50 mark for the first time this year despite failure to agree production caps by Iran and Russia. This gives some hope of a limited recovery within the calendar year.”

Buchan added that he expects to see the oil price remain close to its current level “for some time to come”.