SCOTLAND’s manufacturing sector recorded its first fall in new orders since autumn 2016 in the latest three months, as output volumes dropped at the fastest pace for two years and employment fell, a key survey reveals.

The drop in total new order volumes was driven by a fall in business from within the UK, the quarterly industrial trends survey published yesterday by the Confederation of British Industry in Scotland shows. Scottish manufacturers achieved an overall rise in new export orders, although the pace of increase slowed sharply.

The survey meanwhile signals inflationary pressures, which have been driven by sterling’s post-Brexit vote weakness, remain intense, with a sharp acceleration in the pace of increase of factory-gate prices.

And it indicates Scottish manufacturers’ overall investment intentions remain weak. Bank of England Governor Mark Carney has been among those to highlight the dampening impact of uncertainty relating to Brexit on UK business investment.

Subtracting the proportion reporting a rise from that posting a drop, a net seven per cent of Scottish manufacturers recorded a fall in total new orders in the latest three months. This contrasted with a balance of 41 per cent of Scottish manufacturers posting a rise in total new orders in the previous quarterly survey.

And the fall in the latest three months was driven by a decline in new domestic order volumes, reported by a net 18% of companies in the sector north of the Border. A balance of 7% of Scottish manufacturers recorded a rise in new export order volumes.

A net 20% of survey respondents recorded a fall in output volumes during the three months to April, pointing to the fastest quarterly pace of decline in two years. In the preceding three months, a balance of 22% of manufacturers north of the Border had recorded a rise in overall output volumes. A rebound in output volumes is projected in the coming three months.

The survey signals the fastest quarterly pace of increase in Scottish manufacturers’ average domestic prices since July 2013, with a net 23% recording a rise in the latest three months.

A balance of 39% of Scottish manufacturers reported a rise in average unit costs in the latest quarterly survey.

A net 43% of companies signalled they planned to reduce investment in plant and machinery over the next 12 months. This was broadly similar to the balance of 45% indicating such an intention in the previous quarterly survey. Meanwhile, a net 45% of survey respondents signalled plans to reduce investment in buildings over the coming year. And a balance of 26% forecast a decline in investment in training. However, a balance of 4% of Scottish manufacturers indicated plans to increase investment in product and process innovation over the next 12 months.

A net 5% of Scottish manufacturers reported a fall in numbers employed in the three months to April, contrasting with a balance of 25% recording a rise in staff numbers in the previous quarterly survey.

In spite of the weak activity readings, a net 31% of Scottish manufacturers indicated their optimism over their business situation had increased over the latest three months. This was the sharpest rise in optimism since July 2014. And a balance of 36% of survey respondents were more optimistic about export prospects for the year ahead.

CBI Scotland director Tracy Black said: “Optimism among firms has picked up further, and Scottish manufacturers are optimistic about the quarter ahead, with output expected to grow robustly.

“Nonetheless, this quarter’s decline in output and domestic orders, coupled with weak investment plans, should act as a wake-up call for policy-makers who should act now to champion Scotland as a great place to invest and grow.”

She added: “Meanwhile, with [Brexit] transition now agreed, hopefully firms can now concentrate more on improving productivity growth through increasing investment in skills and more efficient plant and machinery.”