22 January 2019

  |  CBI Scotland

Press release

Manufacturing activity picks up but optimism continues to wane - CBI Scotland Industrial Trends Survey

Read the latest findings from the quarterly CBI Industrial Trends Survey (ITS) for Scotland. 

Manufacturing activity picks up but optimism continues to wane - CBI Scotland Industrial Trends Survey

Total new orders growth picked up in the three months to January, according to the latest Industrial Trends Survey for Scotland, with export and domestic orders both strengthening following declines in the previous quarter.  

But looking ahead, total new orders are expected to fall in the next three months, with expectations at their weakest since October 2015. While export orders growth is anticipated to broadly keep pace with the past three months, domestic orders look set to contract significantly.

This pattern is largely mirrored in the figures for manufacturing output, with growth picking up in the three months to January but respondents predicting a decline in output in the following quarter – with expectations at their weakest since July 2012.

Further, business optimism among Scottish manufacturers fell at its quickest pace in seven years, as investment intentions for the year ahead remained resolutely negative across buildings, plant & machinery, product & process innovation and training & retraining.

Capacity pressures also appear to be biting, with the proportion of firms working below capacity at its lowest since 2006, while concerns over labour shortages limiting investment in the year ahead rose to a record high (since October 1989).

Tracy Black, CBI Scotland Director, said:

“In spite of decent growth over the past quarter, Brexit is clearly having an impact on Scotland’s manufacturing sector. The fall in business optimism has gathered pace and expectations for activity in the coming months are worryingly down.

“Put yourself in the place of our key business leaders. It’s a pretty tall order to convince firms to keep investing against such an uncertain backdrop, particularly when the spectre of a ‘no deal’ remains a live concern. Yet investment in people and skills, innovation and new technology is exactly what we need – we all know Scotland has a long-term productivity challenge to address.

“With our analysis published yesterday showing that ‘no deal’ could cost the Scottish economy up to £14 billion a year by 2034, it’s time for politicians to step up to the plate and, in the spirit of compromise, find a way to break the Brexit deadlock. If they can’t do that, businesses may be forced to make some extremely difficult choices.”

 

Key findings

Business sentiment

  • Business optimism (-33) contracted at the fastest pace since January 2012.

Activity

  • Total new orders growth picked up in the three months to January (+21 from +5 in October). Export orders and domestic orders growth both picked up in the three months to January following declines in October (+10 from -11 and +21 from -18, respectively).
  • Total new orders are expected to fall in the next three months (-18), with expectations at their weakest since October 2015. Domestic orders are also expected to contact (-18), while export orders are expected to grow at a roughly similar pace (+7).
  • Output growth picked up in the three months to January (+22 from +3). But output is expected to fall in the next three months (-10), with expectations at their weakest since July 2012.

Prices and costs

  • Average unit costs in the three months to January (+29) grew at a similar pace to October. Domestic price growth quickened (+23 from +11), while export price growth slowed slightly (+4 from +8).

Investment

  • Investment intentions for the next year were negative across the board (buildings, plant & machinery, product & process innovation, and training & retraining).

Capacity

  • The proportion of manufacturing firms working below capacity (24%) was at its lowest since July 2006.