Chief Exec’s report Q4 2022
6 minute read
It’s tempting to think that life is increasingly chaotic, but the last three months really has taken the biscuit. When we wrote in September of our deep concerns about the cost of energy crisis for business, we welcomed the imminent end of an absence of leadership in number 10 Downing Street, a chance to reset and refocus the UK government to help both the general public, and the businesses that they depend on for employment and income.
That statement was made two prime ministers ago, and in the three-month period since the rollercoaster-without-a-seatbelt experience that was the Liz Truss experiment is already fading like a bad dream we are trying hard to forget. To be fair, it wasn’t all bad, as we did get the much-needed support for business energy costs, albeit a much shorter timeline than industry needs, as frankly there are few realistic scenarios under which energy costs will be any less threatening at the end of March 2023. For the rest, let’s just be kind and move on.
Our third Prime Minister of 2022, and his Chancellor of the Exchequer, have their target set on bringing back proper grown-up political leadership, with a focus on counting the money in – from taxes and borrowing – and the money out in terms of public spending, and no prizes to any of us for predicting that those tricky sums weren’t looking great. Their take on that situation is an unsurprising and unwelcome return to public spending cuts coupled with increased taxation to try to balance the books. Cue a downturn in optimism, compounded by announcement that a technical recession is already with us, and perhaps some misjudged comments from our central bank on how especially long and deep and difficult this one is going to be.
Our sector has been battling challenges since the first impacts of Brexit morphed into a global pandemic, with every flavour of shortage and cost increase imaginable on a seemingly never-ending upward spiral. So why, with at best a gloomy outlook for the UK that would in any previous recession see our sector follow suit, are we still reporting order and output growth, and especially, a positive outlook for that fragile commodity: optimism?
Predicting the future is they say a fool’s game, and I am painfully aware that in another three months we could face a set of results that match the wider economic concerns for the UK. However, it’s a conundrum that Scottish Engineering has been debating all year – how come despite the kinds of challenges that would normally signal retraction and downturn, we are continuing a positive outlook? It’s a question we should make an attempt to answer, risky as that may be.
A strong candidate for a positive outlook is demand within the oil and gas sector, brought on by the impact of Russia’s invasion of Ukraine, and an outcome that most of the world would prefer never to buy Russian oil or gas again. Conversations with member companies record this increase in business, and the detail in this quarterly review shows that precision engineering, which has a high energy sector content, reports a 38% increase in order intake, a 50% increase in output volume, and a 50% increase in forecast output volume for the coming three months. For the same reason we are concerned that our own energy prices are unlikely to fall any time soon, continued strength of demand in this area does not seem unlikely.
Aerospace will be a part of those numbers, and this is a sector that had to be more patient than most for the return of demand, but now are seeing that volume thankfully returning.
The supply chain for the Type 26 and Type 31 Frigates being built in the West and East of Scotland, and our strong defence supply capability in Scotland as a whole is a significant and important part of this demand, and these are long-term high-value programmes.
Add to this the companies who are already playing a part in projects crucial to our transition to net zero, and perhaps this adds up to the current resilience which seems to be holding up for our engineering and manufacturing sector.
Is this over optimism? Maybe, but the last thing we need is to talk ourselves into a sector downturn, so looking to make sense of what are a remarkably good set of markers given the wider landscape seems like a highly appropriate, and business-minded approach to take.
However, one definite cloud on the horizon is energy pricing, in view of that current short timeline of central support. A successful manufacturing engineering sector must be underpinned by competitive and reliable energy supplies and for that we look to government to take all measures they can to support the sector through what remain undoubtedly stormy waters ahead.