Confidence among Scotland’s industrial firms has improved, with export orders outperforming domestic demand and hiring continuing, despite cost pressures.
A survey by trade group Scottish Engineering showed confidence was up four percentage points, while 79% of respondents maintained or increased staff even as margins fell sharply.
Medium-sized companies delivered the strongest results, while exports continued to act as a buffer against weaker UK demand.
Order intake remains under pressure, with total orders declining by 12 percentage points.
The findings come as the Office for Budget Responsibility’s November Economic and Fiscal Outlook confirms a tougher fiscal environment ahead. UK growth projections have been revised down, inflation is forecast to remain above target until 2027, and the overall tax burden is set to reach a record 38% of GDP by 2030.
Paul Sheerin, chief executive of Scottish Engineering, said: “We want to remain balanced in our appraisal of this budget, but it’s hard not to be disappointed at the gap between the Government’s stated ambition to grow the economy and the reality of what this will deliver.
“Yet again our sector is showing its capacity for resilience, but the wider economic signals are hard to ignore whilst rising taxes, stubborn inflation and higher energy costs all add pressure at a time when companies are already managing tight margins.
“Despite this, our members continue to take a long term view by investing in their people and looking to export markets for growth — a clear sign of their long-term approach to ensuring competitiveness.
“The kindest thing you could say is it’s an improvement on last year, with no direct equivalent to the bombshell that employer National Insurance (NI) increases brought.
“The plan to extend production from existing gas and oil fields will be welcomed by many of our members, but the silence on the energy profits levy does not bode well for a managed energy transition that does not leave people behind.
“The decision to freeze tax thresholds – the largest single element at £8bn – includes employer NI, and so each year that will add another on-cost that may bring revenue to the public purse but adds zero value to the businesses paying it. Similarly with changing the rules for salary-sacrifice pension contributions where we expect there will be both an employee and employer impact.
“The pre-announced significant increase in minimum wage runs the risk of making it more expensive to create new jobs for young people where we have rising unemployment, and we know that this also pushes up the rest of the organisation’s salary expectations, raising costs and reducing competitiveness.
“Once again owner-managed businesses may feel that they have been singled out with the rise in dividend tax likely to weigh heavily on investment and entrepreneurship, and reducing the Capital Gains Tax relief on a sale to an Employee Ownership Trust (EOT) may directly impact the same group. Given the social value that EOTs can bring, choosing a path likely to disincentivise an EOT feels like an odd direction for a Labour-led Government.
“And on the day that the OBR couldn’t wait to release all this good news, including its forecast for a reduction in productivity, the decision to reduce the writing down allowance (WDA) deserves a particular mention.
“Not only will this increase an employer’s?corporation tax liability, but additionally it has a negative impact on business cash flow and stifles the clear investment incentive that drives productivity up.
“So, whilst we should be balanced in our appraisal that this doesn’t include the single-sourced devastating impact of last year’s budget, the mix of smaller impacts might feel to some like death by a thousand cuts.
“And once again the ambition to grow our economy that we all agreed with then, and still do now, seems nowhere to be seen.”
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