Blog: Scottish engineering sector posts strong growth but hit by Brexit woe – HeraldScotland

SCOTTISH engineering companies achieved the sharpest growth in new orders for at least three decades in the latest quarter with output volumes and staffing also rising strongly but Brexit continues to hamper the sector, a survey reveals.

The hurdles arising from the UK’s exit from the European Union and single market are highlighted by Scottish Engineering in the industry body’s commentary on its latest survey findings.

It flags the loss of skilled EU workers from the sector in Scotland and challenges for companies in finding new staff in the wake of the end of free movement between the UK and the European bloc. Scottish Engineering also highlights logistics challenges arising from Brexit, and worries over the effect on companies of the implementation of import checks from the start of next year.

Paul Sheerin, chief executive of Scottish Engineering, said: “Brexit still lingers like a bad smell, a gift that not only keeps giving but never seems to go away either.”

He added: “In the crucial skills area, one-quarter of members have been impacted by the loss of EU nationals, and over 70 per cent honestly outline that they are not fully prepared for the scheduled implementation of Brexit-enforced import checks due to start from January 1, 2022.”

Subtracting the proportion reporting a decline from that achieving a rise, a balance of 35% of engineering companies in Scotland posted an increase in order intake for the latest quarter.

Mr Sheerin noted this was the strongest reading since at least 1991.

The survey shows strong growth in both new UK and export orders. Export order growth in the latest quarter is the strongest since 2018.

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A balance of 27% of engineering companies in Scotland reported an increase in output volumes for the latest quarter.

Meanwhile, a net 17% of engineering companies increased staffing in the latest quarter, with 32% adding to employment and only 15% reducing it and the remainder of survey respondents reporting an unchanged position.

However, highlighting the challenges for companies in filling vacancies, Scottish Engineering declares: “Staffing intent remains positive and within a few [percentage] points of last quarter, and once again we listen to member feedback of the challenge of actually filling the vacancies where they seek to hire additional roles.

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“More than ever this has proven difficult as all resources become increasingly scarce, and the impacts of Brexit – still far from done – are evident in staffing, logistics and concern that import checks scheduled for the new year may bring further headaches.”

The survey underlines inflationary pressures for the sector, with respective balances of 57% and 58% of small engineering companies, burdened by higher costs for raw materials and components, forecasting rises in their UK and export prices.

Scottish Engineering also flags challenges presented by the surge in energy prices.

It says: “The forecast for prices quantifies the feedback of members that raw material and component cost increases have unfortunately stayed with us and there is no clarity that they are stabilising yet, with energy costs also now a significant concern.”

Mr Sheerin described 2021 as “a year of surprising welcome levels of order recovery in one sense, dampened by the reality of raw material, component, logistics and resource shortages and costs”.

He said: “One member couldn’t have described it more clearly in their response in this review, ‘We are not able to enjoy being as busy as we are, as the continual issues of price and supply are not easy to deal with’.”

Mr Sheerin added: “In any kind of normality, the increased order intake, output volume and exports would be welcome news after a period of downturn – and in truth they still are – but for now, it comes with a constant headache of where and when the ingredients needed to make a customer’s order will come from.

“Energy-price increases are a new addition to the list of concerns, so perhaps it’s not surprising that almost half of our respondents believe that this challenge will be with us until the second half of 2022, and only then might we see an improving outlook.”

The survey shows engineering companies in Scotland anticipate further significant rises in orders and output volumes in the coming quarter.

A balance of 26% of survey respondents forecast a rise in overall order intake over the next three months. Respective balances of 23% and 27% anticipate increases in new UK and export orders. And a net 22% of engineering companies in Scotland forecast a rise in output volumes in the coming three months.

However, Mr Sheerin struck a cautious tone, underlining continuing challenges ahead.

He said: “As we look forward to 2022, it has to be a cautious outlook with materials, logistics, energy and wage inflation all likely to be possible causes of headaches for the foreseeable future, but perhaps the most difficult factor is the continued unpredictability.

“A constant theme across companies talking to us every day is how hard it is to plan, when there is so little you can reasonably base a forecast on.”

Mr Sheerin declared that Scottish Engineering’s “takeaway” from the fringe events in which it participated at this month’s COP26 United Nations Climate Change Conference in Glasgow was that “business and industry are now ahead of governments in their intentions for action to address the climate emergency”.

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