THE Scottish engineering sector has suffered its sharpest fall in order intake since the last recession, as the Brexit vote weighed heavily and greatly exacerbated long-running troubles stemming from the oil and gas downturn.
Industry body Scottish Engineering’s latest survey of activity in the sector shows both order intake and output volumes dropped for a seventh consecutive quarter in the three months to August. Export order intake has now fallen for 12 straight quarters. Total and export orders, and output volumes all dropped at much faster rates than in the preceding three months.
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And the engineering sector cut staffing in the three months to August, the survey shows. Employment had been flat in the previous two quarterly surveys.
Bryan Buchan, chief executive of Scottish Engineering, said: “The first waves of the economic tsunami that is Brexit have already landed on our island shores. As the results of this quarterly
review show, we appear to have been hit on all fronts and the potential benefit of a weaker pound for exporters [has] yet to be realised.”
Mr Buchan highlighted serious concerns among member companies that there was worse to come.
He said: “We find ourselves in a unique position, quite different to the general recession experienced in 2008, in that this situation affects the UK in isolation and there remains great uncertainty as to how the economic impacts will play out.”
Mr Buchan, who highlighted some engineering companies’ “disbelief” over the UK electorate’s Brexit vote on June 23, added: “By their nature, the negotiation of trade agreements is protracted and we can expect possibly two years of further uncertainty as these are hammered out.
“There is a serious concern in our sector that the worst may be yet to come and we are unlikely to see any salvation from a recovery in oil prices in the near future. A common theme in visiting some of our member companies is that ‘the phones have gone very quiet’.”
Mr Buchan highlighted a “very high level of uncertainty”, noting this would prevail until it became clear what the trading arrangements would be with EU member states following Brexit.
Scottish Engineering meanwhile declared that uncertainty surrounding the Brexit vote and “subsequent allusions to another independence referendum” by First Minister Nicola Sturgeon were exacerbating negative trading conditions for the sector in Scotland.
Highlighting the Scottish electorate’s wish to stay in the EU, the First Minister said in the immediate wake of the Brexit vote that a second independence referendum was “highly likely”.
Referring to the talk of a second Scottish independence referendum, Mr Buchan said: “It is a factor that will play on people’s minds.”
Among Scottish engineering companies surveyed, 45 per cent reported a fall in total order intake in the three months to August and only 23 per cent achieved a rise.
The balance of 22 per cent reporting a fall is worse than the net 21 per cent experiencing a drop in the same period of last year, when the sector was hit hard by the oil and gas downturn, and thus signals the steepest slide in order intake since the 2008/09 recession.
Meanwhile, a net 27 per cent of Scottish engineering companies reported a drop in output volumes for the three months to August, with 48 per cent experiencing a fall and only 21 per cent achieving a rise.
And 29 per cent of Scottish engineering firms reported a fall in staffing, with only 20 per cent increasing headcount.
The Brexit vote was followed by a plunge in the pound.
Mr Buchan noted the Scottish engineering sector had, as a result of the Brexit vote, seen a significant rise in commodity prices, notably metals including nickel and zinc.
He added that this was particularly affecting those involved in fabrication and galvanising.
Mr Buchan observed companies based in other EU member states with operations in Scotland would be keeping a particularly close eye on the UK’s negotiation of future trade arrangements.
He said: “There are quite a number of significant organisations in Scotland that are in European ownership. They are obviously keeping a closer eye on what is likely to come out of any trade arrangements going forward. They are significant businesses.”
A survey published by the Chartered Institute of Procurement & Supply yesterday showed a rebound in UK manufacturing activity in August, after a plunge in July, as exports were boosted by the weaker pound.
Mr Buchan, noting Scotland’s key role in the UK engineering sector supply chain, expressed hopes this boost might feed through eventually to companies north of the Border.
However, while UK manufacturing activity grew in August at the fastest pace in 10 months, the expansion was relatively modest. And CIPS’s survey showed UK manufacturers’ overall input and output price inflation had surged to five-year highs, which may fuel economists’ worries the UK could face stagflation.
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