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Brief respite for Scottish manufacturing sector but outlook remains challenging

Manufacturing output stabilised in the quarter to January, following three consecutive quarters of decline, according to the latest CBI quarterly Industrial Trends Survey for Scotland. However, output is expected to return to sharp decline in the months ahead.

The survey saw an overall decline in total domestic and export orders, albeit at a slower pace than the previous three quarters. Both are expected to decline at a sharper pace next quarter.  

Furthermore, headcount declined more rapidly than in the previous quarter and cost pressures ramped up sharply, putting real pressure on margins. Growth in average unit costs is expected to pick up even further in the next three months, with expectations at their highest since April 2013.

Investment intentions for the year ahead have turned positive across the board, with plans for buildings investment at their strongest since July 2014 and plant & machinery investment the highest since July 2019.

Tracy Black, CBI Scotland Director, yesterday said:

“With vaccine approval news being offset by another nationwide lockdown in Scotland, this survey seems to have bucked the trend seen over much of 2020, with a broad stabilisation in activity across the sector. But the fact that firms are feeling pessimistic about the immediate future reflects a sense of hopes dashed, and the need to brace for more tough months ahead.

“Cost pressures and evaporating demand mean that the Scottish and UK governments need to avoid tapering off business support and ensure that existing resources get to firms that need them as quickly as possible. Extending the successful Job Retention Scheme until the end of June would be a huge relief and go some way to protecting jobs and livelihoods.

“The uptick in investment intentions across the board tells a positive story about firms’ commitment to build back better from the pandemic. It’s also a good reminder that Scotland remains a great place to live, work and do business.”

Output

  • The volume of output stabilised in the three months to January (+1), following three consecutive quarters of decline, (-13 in the previous quarter).
  • Output is expected to fall sharply in the quarter ahead (-41).

Orders

  • The volume of domestic orders continued to fall, but the decline eased significantly (-18) on the previous quarter (-56). They are expected to decline at a quicker pace next quarter (-37).
  • This was mirrored in volume of export orders, which fell at a far slower pace (-14) then the previous quarter (-39). They are also expected to fall sharply in the three months to April (-44).

Headcount

  • Numbers employed in the three months to January fell at a quicker pace than in October (-35, from -24). Firms expect headcounts to continue to fall next quarter (-16%).

Costs and prices

  • Average cost growth in the quarter to January picked up (+26), following no growth in costs in the three months to October (0%). Cost inflation is expected to accelerate sharply in the next quarter (+46), marking the highest expectations since April 2013 (+59).

Business sentiment

  • Overall business sentiment for the three months ahead stabilised in the quarter to January (-2 from -41 in October).

Investment

  • Firms’ investment intentions for the next year improved, returning to positive balances across the board.
  • Investment in both buildings (+4 from -68) and plant & machinery (+7 from -69) is expected to increase slightly in the year ahead.

 

Original article link: https://www.cbi.org.uk/media-centre/articles/brief-respite-for-scottish-manufacturing-sector-but-outlook-remains-challenging/

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