SCOTTISH engineering companies have reported a ninth consecutive quarter of order and output growth as the sector maintained its recovery from the coronavirus pandemic.

But the industry continues to be challenged by a skills shortage which is creating capacity restrictions where they are in short supply, sparking a rise in investment in training and the growth of flexible working.

The latest quarterly review by Scottish Engineering, published today, underlines that sentiment across the sector remains broadly positive, after the industry moved into a third year of order and output growth.

The report found a net 26% of companies saw orders increase against the previous quarter, as output volumes, exports and staffing levels climbed again.

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And it signalled members' optimism with regard to the coming quarter, with a net 37% of firms forecasting a rise in orders and 44% anticipating an increase in output volumes.

Exports rose for the second quarter in a row, the survey added, with a net 18% of firms reporting an incease. This exceeded the UK order net increase of 15%.

Smaller companies said export orders had improved on the previous quarter by 23 percentage points, though a significant number of larger firms reported a decline, resulting in a net score of -33%.

Sentiment remains optimistic, with a net 21% of firms citing an improvement in outlook. Companies of all size reported improved positivity, notably larger companies as a net 20% of firms in this bracket reported an increase in sentiment.

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Staffing intentions increased again, at +12%, which according to the report emphasises the difficulties firms are facing in recruiting the people they need.

On output, a net 35% of Scottish Engineering members reported a rise in volumes, with 37% of small and medium companies seeing increasing volumes. Larger companies, however, showed an equal percentage positive and negative returns, with 40% reporting a rise and 40% a fall.

On the staffing front, the report concluded that the ongoing challenge companies face to find staff to keep up with demand was driving an increase in training investment. Four in 10 companies said they had increased investment in this area in the last three months, as the same number of businesses increased staffing numbers over the period.

Scottish Engineering said it had asked members about flexible working for the first time in light of the “fundamental” changes to working practices that have taken place since the pandemic. And it noted that the results were “surprising, showing a rapid rate of change and adoption of a broad range of flexible working arrangements”.

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The report found 28% of companies have implemented a compressed working week such as a short Friday, four-day week or nine-day fortnight, with 18% considering a change in this area. Moreover, 28% said they are allowing shop floor employees to work flexibly, including access to flexible starting and finishing times.

Paul Sheerin, chief executive of Scottish Engineering, said: “Accessing future and current skilled people has been a constant challenge since demand returned to our sector, and like any high-demand marketplace, we need to adapt to ensure we attract these skilled individuals to stay or come and join us.

“Against that, it’s great to see the way companies have adapted to take on board flexible working arrangements that suit both their employees and the company. That won’t look the same for everyone, and there is no benefit adopting changes that put business sustainability at risk, but the wide range of options that can add value in balance means this can be the win-win that everyone is aiming for.”