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Sobering' quarter for Scottish firms

CBI’s Black urges Brexit ‘compromise and pragmatism’

Tracy Black

Tracy Black: ‘firms are wary of committing to growing and investing’ (pic: Terry Murden)


CBI Scotland director Tracy Black has called for ‘compromise and pragmatism’ to calm nerves among businesses becoming increasingly alarmed by Brexit uncertainty.

The lobby group’s latest industrial trends survey reveals business optimism deteriorated at the fastest pace since July 2016 while optimism on export prospects worsened in what it described as “a sobering quarter for Scottish manufacturers”.

Changes in business sentiment were largely mirrored in activity, with both domestic orders and export orders falling on the quarter – with the latter declining for the first time in two years.

While export orders are expected to return to growth in the coming quarter, domestic orders are set to continue falling. Political and economic conditions abroad was identified as the factor most likely to limit exports over the coming three months – reaching its highest level since July 1983.

Additionally, output was broadly unchanged over the past three months and looks set to remain flat moving into the next quarter.

Employment growth slowed over the past quarter, while hiring intentions for the three months to January are the weakest since October 2016, with Scottish manufacturers set to keep employment unchanged.

Investment intentions also deteriorated, with firms still expecting to cut back spending on buildings, plant and machinery. Spending on training and re-training is expected to be unchanged. Nonetheless, investment intentions for training were at their firmest since July 2017.

Capacity pressures continue to mount with the percentage of firms working below capacity edging slightly lower last quarter. As a result, expanding capacity was identified as a key reason for investment, by the most respondents since July 2014.

Ms Black said: “With continued pessimism about Scotland’s export prospects and an alarming number of firms citing concerns over political and economic conditions abroad, it’s clear that continued uncertainty over Brexit is unsettling Scottish manufacturers.

“With the clock ticking as negotiations enter the critical final phase, we urgently need compromise and pragmatism from all sides to calm nerves across an important sector for the Scottish economy.

“Weaker employment growth paired with a deterioration in investment intentions  also points to a situation where firms are wary of committing to growing and investing in the current climate – something we desperately need to address Scotland’s productivity challenge.” 

Key findings

Business sentiment

  • Business optimism deteriorated at the fastest pace since July 2016 (-9% from -6%). Export optimism continued to worsen (-7% from -19%).


  • Export orders (-11%) and domestic orders (-18%) fell, with the former declining at the fastest pace since October 2016.
  • Expectations are for domestic orders to continue falling (-9%). Meanwhile, export orders (+18%) growth is set to recover to above its long run average (of +8%).
  • Output was broadly unchanged over the past three months (+3% from +10%). Expectations are for output to remain flat over the next three months (+3%).
  • Employment growth slowed sharply (+8% from +27%) while manufacturers’ hiring intentions are set to be flat next quarter (-2%), the weakest intentions since October 2016.
  • Orders or sales remains the most cited factor likely to limit output (37%). However, political/economic conditions abroad as a factor to limit export orders (61%) rose to the highest since July 1983 (67%)

Prices and costs

  • Average unit cost (+29% from +22%) growth edged higher compared to the preceding quarter. Cost growth is set to edge slightly lower next quarter (+24%).
  • Domestic price (+11% from +31%) growth slowed sharply, while export price growth (+8% from +3%) edged slightly higher. Factory gate prices for the Scottish market (+6%) are set to slow further next quarter while price growth for overseas clients (+15%) are expected to pick up.


  • Manufacturers expect to cut investment in buildings (-18%) and plant & machinery (-18%) over the next 12 months.
  • Capital expenditure on product and process innovation is expected to be cut back over the year ahead (-9%) while investment on training and retraining is expected to be kept the same (+1%), the firmest intentions since July 2017.
  • Inadequate net return as a factor to limit investment (20%) is the lowest since January 2015, while uncertainty about demand remains the most cited factor (34%).


  • The proportion of firms working below capacity (37% from 43%) edged lower – signs of capacity pressures mounting.
  • Stocks of finished goods (-24%) fell at the fastest pace since April 2014.


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