Engineering Update: Quarter 1 2017
30 May 2017
If you were to ask any sector of industry what the word ‘Brexit’ means to them you would probably find the same answers cropping up: Worries over access to labour, increased costs and the falling value of the pound. No market knows this quite like the Scottish Engineering sector, where productivity and profit can easily become a victim of party politics.
However, the opening quarter of 2017 has not been the great ‘doom and gloom’ story that was predicted, following the decision to leave the EU. In fact, despite the forecasts, the Scottish Engineering sector has managed to make something of a comeback in the first three months of this year.
And the positivity and buoyancy enjoyed by the industry at the start of this year should not be short-lived. The Engineering sector is predicted to have the second highest growth rates in the UK for 2017.
The industry has witnessed several improvements in key areas such as:
- Growth in exports, 30% of businesses reporting above normal activity
- 27% of companies have reported a rise in overall order intake, signalling a sharp acceleration in the pace of increase
- Output volume throughout the sector has increased by 14% compared to the final quarter of 2016
Of course, the growth in exports does come at a price, since the figures can surely be attributed to the decline in the value of the pound. Whilst we’re shipping more abroad, our customers are able to get more for their money than they used to. It is predominantly SME-sized companies that are reporting this achievement in terms of increased exports. Larger companies report that their output remains static.
With the current government opting for a ‘hard’ Brexit, the Scottish Engineering industry may face an uncertain future yet. Several investment plans have already been affected – with a lack of long-term EU funding being a major factor in this. No business can afford to have projects come to a halt.
To achieve long-term prosperity, beyond any EU trade negotiations, there are two main factors that the Engineering industry may well be reliant on.
- Expanding export markets to countries outside the EU, including the likes of China, India, Malaysia and Brazil.
- Remaining hopeful that the UK’s new relationship with the EU is positive. (Avoiding extortionate tariffs with the likes of France and Germany is vital, as they are important markets for Scotland.)
There are also concerns regarding the shortage of skilled employees in the UK to plug the gaps in the market. An estimated 1 million graduate and apprentice positions are expected to be available between now and 2022 - yet the UK is only set to produce 46,000 graduates and 27,000 apprenticeships per year. An ageing workforce, combined with a lack of STEM graduates over recent years, has resulted in an undersized talent pool that is ill-equipped to replace the large number of people that are expected to leave work between now and 2025.
This will lead to an increase in demand for these highly skilled candidates, as well as importing engineers from the rest of the world – which may not be possible, should stricter immigration laws be enforced post-Brexit.
It doesn’t sound overwhelmingly positive, but there is still plenty of life left in the Scottish Engineering industry. With the government heavily investing in STEM education, a new wave of school leavers and graduates are set to have a new passion for Scotland’s traditional industries. The growth in exports is also something to build on.
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Written By Natalie McGeoch