Scottish factories currently enjoying bulging order books are so fearful of the impact of energy price hikes that they are taking advice on winding up their businesses.

Trade group Scottish Engineering is warning that the energy cost crisis is overshadowing a notable high of a record six quarters of order and output growth.

While firms are winning business and seeking workers, a third of respondents to its latest quarterly survey say the price changes will put their business at risk.

It points out that more than half of respondents are yet to experience those impacts as their current energy contracts do not expire until 2023 or 2024.

Those which have been impacted report an average of more than three and a half times increases while 23% say they will be unable to recover these costs.

In one case, an engineering company of fewer than 50 employees has been told its energy bill will rise from £15,000 per month to £80,000.

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Scottish Engineering chief executive Paul Sheerin said: “As an energy-intensive business, manufacturing high tensile steel components, energy is already a significant proportion of their costs.

“But this impact is unsustainable, leading the directors to discharge their duty by engaging with their accountant to understand the mechanism of a potential voluntary liquidation. 

“Meanwhile their workshop remains flat out, with a full order book until the middle of 2023, manufacturing export orders for critical connectors for Ukrainian tanks resisting the Russian invasion, plus parts for oil, gas and renewable energy markets.”

He added: “We just cannot assume that businesses can simply pass on these extra costs – indeed responses from industry underline that only 15% of companies believe they could fully or substantially pass on increases. 

“These are companies in highly competitive global supply chains, with competition placed in countries mitigating this crisis either through existing radically different approaches to industrial energy strategy, or measures which will alleviate or mitigate rises.

“Until now the public discussion has understandably centred on the impact on consumers, justifiably concerned with the societal impact that an amplified fuel poverty scenario would have. 

“It’s a discussion that the incoming Prime Minister and their new cabinet urgently have to extend to include industrial energy costs, as faced with these impacts, those manufacturing companies that don’t survive will instantly remove well paid employment from society, and those that do survive will do so by doing what they know will work:  cutting costs, unfortunately including well paid employment – currently the best defence against the societal impact of this crisis.

“Where to start for next week’s new cabinet? Well, there are a plethora of potential remedies being proposed by energy industry participants, politicians, and industry commentators, but they will be of no consequence to the scenario outlined above unless they bring direct support for industrial energy costs.”

Chambers forecast recession

The British Chambers of Commerce (BCC) is forecasting a recession for the UK economy this year, with negative economic growth over three quarters and inflation hitting 14%.

UK inflation is now expected to reach 14% in Q4 2022, an upwards revision of four percentage-points from its previous projection of 10%.

Annual expectations for GDP growth also continue to decline, with 3.3% forecast for 2022, significantly below the 7.4% growth recorded in 2021.

However, unlike the Bank of England, the BCC expects the economy to grow in 2023, albeit at a very low 0.2%, with a slight increase to 1% in 2024. 

Alex Veitch, director of policy at the BCC, said: “Our latest quarterly economic forecast will not be of any comfort to either consumers or businesses.

“The extreme inflationary pressures already present are only likely to increase as we head towards Christmas; with the UK economy already thought to be in recession. Tackling these pressures must be at the top of the new Prime Minister’s inbox when they take up their position next week.”

The BCC has called for Covid-style support by introducing a Government Emergency Energy grant, a temporary cut in VAT on energy bills to 5% to reduce costs for firms and increased regulation of the energy market for businesses by Ofgem.

Modest easing in shopper footfall decline

Footfall in Scottish shops decreased by 14.8% in August compared to the same month in 2019 and 1.7 percentage points better than July. However, this is worse than the UK average decline of 12.4% (Yo3Y).

David Lonsdale, director, Scottish Retail Consortium, said: “August saw a slightly more upbeat set of figures for visits to stores in Scotland and the best performance for four months, with concerns about galloping household energy bills not enough to keep Scots away. 

“Buoyed by the return of holidaying, social occasions and tourism, the modest improvement in shopper footfall was felt across most retail destinations and especially in Edinburgh and Glasgow. Shopping centres however continued to struggle.

“Despite the improvement, visits to stores remain well down on pre-pandemic levels and Scotland continued to lag the twelve other parts of the UK surveyed for a fourth month in a row.

“That’s worrying given inflationary headwinds and the likely impact on consumer sentiment and spending power, more so in the lead up to what is traditionally the crucial golden trading quarter for the industry in the final months of the year.”