20.05.2021

Higher costs, lower employment expected for engineering services sector

The rising costs of labour and materials stand out as major concerns from the latest survey of UK electrotechnical and engineering services firms. This is expected to have a negative impact on profits and employment.

Significant uncertainty has led to a quarter of businesses (24 per cent) employing fewer apprentices in Q2. A third (34 per cent) of respondents added that they would need less agency and sub-contracted labour this quarter.

Similarly, nearly eight in 10 (78 per cent) believed labour costs in Q2 would remain stable or rise, with just 20 per cent anticipating a fall. More than one in five (22 per cent) expect to employ less direct labour in Q2 compared to the last quarter.

Andrew Eldred, ECA Director of Employment and Skills, said: “Employment and apprenticeships are still at risk. Behind the headline growth figures, conditions remain challenging for many engineering services employers and employees.”

Some firms expressed cautious optimism about turnover recovery in the latter half of the year, though this was set against the current backdrop of rising material costs resulting in squeezed margins

Two thirds of businesses (37 per cent) expect the cost of materials to escalate in Q2, while 45 per cent expect them to stay stable.

Nine in 10 businesses (90 per cent) expect the cost of tendering to stay the same or increase in Q2 2021, while only 9 per cent anticipated this would fall.

Rob Driscoll, ECA Director of Legal and Business, said: “Uncertainty of demand post-pandemic, a backlog of potential Covid disputes, implementation of Reverse VAT, IR35, continuing H&S restrictions due to Covid, sharply escalating materials, along with costs, delays and shortages – are compounding in the first half of 2021 to create one of the most hostile business landscapes in recent memory.

“When demand rockets, in an environment of restricted supply and price remains low margins are squeezed to breaking-point.

"By extension the pressure this brings on employment and training is historically undeniable.”

Paula Samuels, BESA Head of Employment Affairs said: “Although the sector has remained active throughout the pandemic delivering essential services, the outlook appears uncertain. The impact of the materials crisis, reduced profitability and the future employment landscape are of real concern.”

Alan Wilson, Managing Director of SELECT, said: “It is clear that the industry still faces many challenges, and it is concerning to see the ongoing apprehension about delays, shortages and the rising costs of materials that are available. It is therefore vital for businesses to plan ahead, order well in advance and factor in for potential disruption to the supply chain.”

Fiona Hodgson, Chief Executive of SNIPEF, said: “The industry certainly has a lot of challenges at the moment and they look set to stay for some time. Our Members are now starting to feel the dual effects of the pandemic and Brexit with rising prices, product shortages and longer lead times.

“The reduction in the number of apprenticeships is of particular concern given the skills shortages already in our industry and this can only exacerbate the problem for the future. This could lead to hindrance when meeting the governments net zero ambitions.”

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