Manufacturing orders and employment jump

New order growth in the three months to July was driven by a surge in domestic order inflow.

Industry body Scottish Engineering recently cited the emergence of some positive reports from engineering companies serving the oil and gas sector, which has been hammered by protracted crude price weakness. The CBI did not break down its findings by manufacturing sub-sector.

Growth in Scottish manufacturers’ new export orders eased, the CBI survey shows.

However, the CBI noted the outlook for new export order growth, in terms of Scottish manufacturers’ expectations, was the strongest for more than a decade.

It added that the outlook for growth in total new orders was at its strongest in three years.

Scottish manufacturers predict further sharp growth in output volumes in the coming three months. And they expect to continue to increase employment, albeit at a significantly slower pace than in the three months to July.

The Scottish manufacturing sector has seen a great deal of volatility in terms of new order levels in recent times.

It experienced a plunge in new orders in the three months to April last year, and then a partial rebound in the May to July 2016 period. The sector then saw a fall in new orders in the three months to last October, before a rebound in the November to January period. In the three months to April this year, new order growth had ground to a virtual halt.

Subtracting the proportion predicting a fall from that achieving a rise, a balance of 50 per cent of Scottish manufacturers posted an increase in new orders for the three months to July. This was the highest such balance since October 1973.

A net 55 per cent reported a rise in new domestic orders – the highest since the survey began measuring this component in July 1975.

Meanwhile, a balance of 46 per cent of manufacturers north of the Border reported a rise in employment for the three months to July, signalling the sharpest increase since comparable records began in June 1966.

However, nearly one-third of Scottish manufacturers cited a shortage of labour as a factor likely to limit capital expenditure authorisations over the next 12 months.

Scottish Chambers of Commerce’s latest survey, published last week, showed growing recruitment difficulties for firms across “almost all” sectors of the economy, citing anecdotal evidence from businesses of a “steady drift of EU workers out of the UK” following last year’s Brexit vote.

A net 46 per cent of Scottish manufacturers posted a rise in output volumes in the three months to July, the CBI survey shows.

CBI Scotland director Hugh Aitken said: “It has been a remarkable quarter for Scottish manufacturers, with orders and output growing at the fastest pace we’ve seen in decades, suggesting the sector may be beginning to regain its poise after a difficult 2016. Indeed, firms expect decent growth in activity to persist into the next quarter.”

He added: “Firms are taking on new staff at a record rate and plan on further increasing headcount over the next three months, though it is clear that accessing skilled labour is a principal concern of manufacturers and is being flagged by a third of our panel as being likely to force them to hold back on investment.”

The CBI said that, in the UK as a whole, a net 14 per cent of manufacturers recorded a rise in new orders in the three months to July. UK-wide, its survey signalled the fastest growth in output volumes since January 1995, with a net 31 per cent reporting an increase.

Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “The July CBI survey suggests that the manufacturing sector has had a healthy start to the third quarter.”

However, Mr Archer added: “Manufacturing surveys have been appreciably stronger than recent official data.

“The CBI and other surveys pointed to clear manufacturing expansion in the second quarter, whereas ONS [Office for National Statistics] data look set to show manufacturing contraction.”