Scottish engineering returns to growth but confidence remains fragile

Order intake rose to a net +17 per cent in the second quarter, while output volume improved to +20 per cent, marking a second consecutive positive quarter and suggesting demand has strengthened across parts of the industrial economy.

Export orders also moved into positive territory at +9 per cent, while UK orders came in at +8 per cent.

Employment indicators also suggest a healthier market. Staffing levels rose to +9 per cent, overtime increased to +16 per cent and training investment remained notably strong at +21 per cent, indicating many businesses are continuing to invest in workforce capability despite wider uncertainty.

Yet the most striking finding in the data is the disconnect between trading performance and business sentiment.

Optimism fell to -7 per cent, a twelve-point deterioration from the previous quarter, even as operational indicators improved. More than a third of respondents said confidence had worsened, compared with 28 per cent reporting an improvement.

Paul Sheerin, chief executive of Scottish Engineering, said: “Our June result takes that on by more than just a notch, with order intake up to +17 per cent, matched by output volume at +20 per cent. These values are solid good news based on the last three months’ trading results, but optimism has fallen sharply as businesses weigh rising energy costs, policy pressures and wider uncertainty around competitiveness and growth.”

Paul said rising energy costs and concerns over UK steel trade policy were weighing heavily on sentiment, despite improving trading conditions.

That suggests firms are increasingly concerned about what lies ahead rather than what they are experiencing today.

The size breakdown tells an equally interesting story. Mid-sized engineering firms appear to be driving much of the recovery, posting +32 per cent order growth and +45 per cent output growth, alongside positive optimism and increased capital investment.

Smaller firms, however, remain notably more cautious. While they reported improved order books and output, optimism among smaller businesses fell to -16 per cent, pointing to pressure on margins, energy costs and confidence in the wider outlook.

Sector performance is also uneven with electrical and electronics businesses posted the strongest order growth at +38 per cent, while plant and machinery also performed strongly, with output up +33 per cent. Precision engineering delivered the sharpest output improvement at +43 per cent.

By contrast, metal products remains a clear outlier, with orders at -50 per cent and optimism equally weak, underlining ongoing pressure in parts of the industrial base.

The data suggests Scotland’s engineering sector is recovering, but this is far from a full rebound.