Rising interest rates have been cited as the manufacturing sector in Scotland saw an end to its run of increased orders since the middle of 2021 in the last quarter.

However, Scottish Engineering said manufacturing output remains positive along with industry optimism, reflecting increased forecast orders for the coming quarter.

Its quarterly review revealed: “Feedback from members point to the impact of the UK’s steeply rising interest rates having a knock-on effect in construction, and steelwork fabrication in particular, alongside a case for patience as our annual work and holiday pattern return to something closer to the cycle we would see pre-pandemic."

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Looking forward, it said, an important index from this quarter shows that plans for capital investment have been on an increasing trend for the last 18 months, with one quarter of companies planning an increased level of investment in this area, despite continuing cost challenges for people, materials and energy reported by almost three quarters of companies.

Paul Sheerin, Scottish Engineering chief executive, said: “So, our welcome, maybe unexpected, run of nine consecutive quarters of order growth has come to an end, leaving us with the question of whether the UK’s steeply rising interest rate has brought a chilly economic wind, or more optimistically that we are merely experiencing a seasonal blip? Maybe it’s both."

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He continued: "Feedback from our members serving the construction industry tell us that it has slowed, with housebuilding especially moving back to cautious scheduling given the impact interest rate rises have made.

“More broadly, as a capital-intensive sector, any situation where the cost of borrowing has starkly increased will bring pressure, and so a calming and cooling of those rates would be welcome sooner rather than later, particularly by our steel fabricators who felt the impact of this the most.”

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He also said: “It’s always difficult where the pendulum for a key measurable swings from positive to negative to balance a reaction which faces facts versus choosing to call for patience.

“In this case with other indices remaining positive and a look back at a normal summer order profile, we opt to reserve judgement, mindful of the importance – and fragility – of business confidence in shaping our economy.”