Engineering growth slows as Brexit fears weigh heavily
SCOTTISH engineering companies have encountered a fall in UK orders and a sharp slowdown in growth of export business and output volumes, as Brexit fears weigh heavily on the sector, a survey reveals.
Industry body Scottish Engineering’s survey signals optimism in the sector has been hit hard.
Paul Sheerin, chief executive of the industry body, cited the example of one Scottish engineering company which had recently started supplying a Dutch business. He noted the arrangement had been going well but that the Dutch company had ended it because of concerns over Brexit.
He said: “The Dutch company informed them, ‘We are concerned about the manifestations of Brexit, so we are going to keep our supply chain on the European mainland’. They [the Dutch company] didn’t know for certain what the impact was going to be but they wanted to play safe. They took the supply chain to an EU country going forward.”
Mr Sheerin, who described the Brexit situation as “chaotic”, said: “Companies are looking for safer options in terms of their supply chain.”
The Scottish Engineering chief highlights a desire to focus on improving productivity in the sector in the industry body’s latest quarterly report, given the degree to which the Brexit situation is out of the business community’s control.
He said: “I do feel that, despite our and many others’ protests, it doesn’t feel as if there is any positive impact coming from that… Unfortunately for the business community, [it] doesn’t seem like we have any say or control over it at all.”
Writing in the report, Mr Sheerin declares: “Three months ago, I described the Brexit progress as shambolic. Today I feel that a better description is chaotic and, given that we are more than two years down this road, with a total absence of clarity or meaningful progress, maybe it’s time to consider that this chaos might be here to stay for a while.
“Larger organisations than ours have railed against the impact that a ‘hard’ or ‘no-deal’ Brexit may bring, seemingly to no avail, so perhaps it’s time to channel our energies into a positive direction once again.”
Emphasising his wish to focus on productivity, he declared: “Rather than wailing and gnashing our teeth on how much Brexit is almost universally disliked, let’s do something positive.”
He noted a rise in business volumes for engineering groups exposed to the oil and gas sector.
The North Sea has been hammered by the global crude price downturn, which began in the second half of 2014. However, some major operators and services companies have been more upbeat recently, buoyed by a partial recovery in oil prices.
Mr Sheerin highlighted continuing pressure on profit margins for engineering companies with oil and gas sector-related activities.
He said of these companies: “They are feeling the uptick of orders because it was such a low level. It has definitely picked up from that. Capacity for them has been an issue. Where they have reduced their overall size, [building] up that capacity is an issue.
“It is a fairly thin margin for people to make money. The margins have been pared away. While they [companies] are grateful for the increase in orders, it is not out of the woods yet.”
The survey shows 31% of engineering companies saw UK order intake fall in the latest three months, while only 27% achieved a rise, pointing to an overall drop.
Subtracting the proportion reporting a fall in overall order intake from that experiencing a rise, a net 2% recorded an increase. However, this was well adrift of a net 15% reporting a rise in order intake in the previous three months.
A balance of 3% of companies reported a rise in output volumes in the latest survey, with a net 15% having recorded an increase in the preceding three months. Only a net 7% of companies reported a rise in export orders in the latest three months. In the previous quarterly survey, a balance of 22% had reported such an increase.
However, a balance of 17% of Scottish engineering firms increased staffing in the latest three months. This signalled a slight acceleration in employment growth, with a net 14% having recorded a rise in staffing in the previous survey.
Mr Sheerin noted Scottish engineering companies, in spite of the deterioration in optimism, were projecting strong growth in orders in the coming three months.