Chief Exec’s report Q1 2025
Read the full Q1 2025 Quarterly Review
3 minute read
This quarter’s survey is significant from a calendar point of view, marking us at the one quarter point of the twenty-first century as we reached the twenty-five year mark.
It would be good if we were able to mark that milestone with good news, but whilst there are always pockets of positive demand it’s not there for the majority of our companies, and that has been a rising trend over the last nine months.
The outlook forecasted by the majority of companies looks more positive, but this is now the third quarter in a row of that pattern, and for the last two the positive forecast delivered a reality of negative order and output. That once again we see an upbeat view for the coming quarter could be viewed with scepticism, but in our view more accurately reflects the feedback that projects are rarely being cancelled but are constantly moving to the right. There is a reasonable belief that they will happen, but until they do, they explain the gap between forecast and actual.
At the release of our last survey, we commented on the impact to confidence, optimism and outlook from the UK government’s budget, and for this quarter we asked members to quantify the potential – and actual – impact from that course of action.
The immediate financial impact will come from the National Insurance and National Living Wage increases, both substantial and instantaneous hits on the cash of a business. From the date of their announcement, we noticed an increasing trend in companies seeking advice and guidance from our Employment Law team on processes for potential redundancies, so we were keen to quantify this area. Our responses showed that seventeen percent of companies will implement a reduction in employees through redundancy, and a further twenty four percent are currently considering a reduction through redundancy.
In 2024, Scottish Engineering saw a four-fold increase in members entering administration and ultimately closure compared to 2023, and in all cases the cash position of the business was the driver following the difficulties of the pandemic, increased energy costs and borrowings. Against that the cash impact of these changes led us to ask what increased risk arises from the changes, and here seventeen percent saw an increase in risk of administration, whilst eleven percent saw a significantly increased risk.
The actions companies are taking to alleviate the damage caused by the changes continue: Thirty one percent are considering or will impact a hiring freeze to offset increased costs; Nineteen percent are considering or will decrease apprentice training – exactly the opposite of what we need just now; Sixty-one percent are considering or will increase product pricing that will do nothing for our export competitiveness; And forty-five percent are considering or will implement reduced or frozen pay increases to offset the impact.
Our final area where we invited comment was for family-owned businesses who will likely be impacted by changes to Inheritance Tax, and here particular concern was expressed for the dilemma this creates. Responses cited the disconnect between focus on business growth and expansion versus the personal impact to the inheriting generation and the way that might act as a disincentive for growth. It prompted a familiar repeated comment as to in which way this reflected a government that champions economic growth?
Where should we look for some good news?
The announcement earlier this week of increased defence spend is good news for Scotland’s engineering and manufacturing economy in the mid to longer term. Confirmation of the release of some of those projects -particularly in our traditional energy sector – that are currently on hold would be most welcome, as they would generate the fastest flow of orders and the accompanying boost that goes with it. And whilst we are exercising the hopeful side of our brain, decisive intervention from the UK government to balance up the impacts that they have made and so prime the pump of confidence would be a welcome way to show that growing our economy is still their top priority.
As a final reflection looking to balance up what feels like a pretty downbeat view on the first one hundred quarters of this century, we asked the question: what was the overall ratio of positive to negative quarters given the recessions, financial crash, oil and gas downturns, global pandemics, geopolitical conflicts and aggressive invasions?
Would you be surprised that it was overall more positive than negative – in fact an almost exactly sixty: forty split. Which for me says that as unwelcome as this is, this too shall pass. Hopefully quickly.
Paul Sheerin
Chief Executive
Scottish Engineering
