Upbeat report

Scots factories report eighth quarter of growth

Paul Sheerin
Paul Sheerin: staff limitations are holding firms back

Scotland’s engineering factories continue to defy talk of downturns and recession by posting an eigth consecutive quarter of order and output growth.

This continuous run has only been beaten once since the turn of the millennium, according to the trade body Scottish Engineering which adds that many firms are being held back only by their inability to hire staff.

Order intake remains positive with an increase of 12% on last quarter. Output volume, exports and staffing have also increased, with exports showing a welcome 9% rise from flat last quarter.

“2023 sets off with a very positive outlook for the year, with overall data in the first quarter demonstrating a confident upward trajectory,” says the group’s latest report.

“Staffing intent has increased slightly on last quarter, reflecting the continuing gap in industry to recruit staff with essential skills.

“The reported increased output volume (+30%) matches the increased capacity utilisation (+31%) which is above 30% for only the third time in the last eight years.”

Looking at the next three months, forecasts remain positive for all company sizes in most areas.

Chief executive Paul Sheerin said: “Two consecutive years of order and output growth are not trivial given the times we live in, but it’s worth rewinding to the only time that metric has been exceeded in the last 23 years. 

“From March 2003 to December 2007, the same set of questions we continue to monitor every three months returned a nostalgia-inducing 19 consecutive quarters of positive growth in orders and output, brought abruptly to an end by a financial crisis from which recovery was slow and painful to say the least.

“The timeframe of that turndown is significant, as it also marked the start of the UK’s divergence from its peers in productivity – essentially flattening at the start of that financial crisis (as did other economies) but where other comparable nations recovered to their pre-crisis trajectory, we did not.

“It’s an important consideration for where we find ourselves now, which is essentially constrained by a lack of skills and people more generally.  The same eight quarters in question have also contained a minimum of 30% of companies trying to increase staffing.”

Business investment

The latest quarterly survey from the Fraser of Allander Institute found that businesses are increasingly taking steps to tackle the current energy crisis and cut costs.

More than 60% of firms reported that the energy crisis has encouraged them to speed up making energy-efficient improvements, echoing the findings of a food and drink survey last week by Johnston Carmichael.

However, since 2014 capital investment by Scottish firms has been weak, and despite recovery from the record lows seen in 2020, business investment has fallen consecutively each quarter since Q4 2021.

Professor Mairi Spowage, director of the institute, said: “Scottish firms have had to weather a number of storms over the past 25 years, and their resilience is once again being tested as they navigate through the current cost-of-doing business crisis.

“Concerningly, our latest findings show consistently low levels of export activity and business investment, which are key drivers of productivity. While business resilience has been shown time and time again, Scottish businesses need support to secure longer-term business and economic growth.”

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