SCOTTISH engineering firms have reported their first increase in orders in two years driven by growth in sales within the UK a study has found.
The latest quarterly survey by Scottish Engineering points to a marked improvement in conditions in the sector in recent months after confidence plunged in the immediate aftermath of the Brexit vote.
The trade body’s chief executive, Bryan Buchan, said the oil and gas downturn continues to take a heavy toll on the sector.
The increase in orders recorded in the latest three months was much smaller than the fall in the preceding three months.
Orders slumped to the lowest levels since the global crisis of 2009 in the quarter to September as the uncertainty triggered by the vote for the UK to leave the European Union posed fresh challenges for the sector.
However, with the rise in orders accompanied by increases in output, staffing, investment and optimism Scottish Engineering said the sector appears to have turned a corner.
Mr Buchan said the results of the latest survey reflected a “significant uplift across the board” on the previous seven quarters.
The research indicated that the growth in orders is mainly due to firms recording a big increase in business from customers in the rest of the UK in recent months.
Scottish firms exporting to areas such as Europe do not appear to have enjoyed much benefit from the recent fall in the value of the pound. However, Scottish Engineering believes they are cashing in on the success of firms exporting from other parts of the UK.
“We believe there has been an improvement in the position for exporters in the rest of the UK which is now filtering through to the supply chain which feeds those exports,” said Mr Buchan.
The growth in orders may also reflect a general improvement in sentiment which has been noticed as the shock caused by the Brexit vote has faded. “After the initial trauma there’s been a settling down,” said Mr Buchan.
He noted firms that had run down stocks in the wake of the Brexit vote as they tried to reduce the working capital tied up in their businesses had started to place orders again.
Scottish Engineering found the numbers of firms who were more optimistic than in the preceding quarter clearly outweighed those who said they were less hopeful.
More respondents expected to increase investment in machinery than planned to cut spending, signalling confidence in the future prospects for demand.
Mr Buchan said “quite a number” of small and medium sized enterprises had invested in machinery in the latest quarter.
“We’re now starting to see that there’s confidence building,” he noted.
But the sector still faces significant challenges, amid great uncertainty about the implications of the Brexit vote.
“We are still none the wiser about the terms and ultimate nature of Brexit, other than the fall in sterling and the consequent inflationary effect on the price of raw materials,” said Mr Buchan.
He reckons the downturn in the North Sea caused by the crude price slump has dealt a catastrophic blow to the industry.
Work for exploration and production and services companies provides an important source of revenue for engineering firms.
Regarding the output curbs agreed on Wednesday by the Opec group of oil producing counties, Mr Buchan said: “I don’t think we are going to see any great alleviation of the issue which came with the oil price collapse in the short term.”
The latest UK purchasing managers index from Markit economics found output slowed in November but remained robust.
The fall in the pound boosted sales to America, mainland Europe and the Middle East. Import costs increased.
The headline index fell to 53.4 in November, from 54.2 in October. Fifty separates growth from expansion.
Scottish Engineering said a balance of four per cent of firms reported increased orders in the latest quarter. A negative balance of 22 per cent suffered a fall in orders in the preceding period.
A balance of six per cent won increased UK orders, against a negative 19 per cent in the previous quarter. The balance noting a fall in exports eased to 17 per cent from 30 per cent.
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