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SMEs optimistic after strong quarterly growth

Small and medium-sized manufacturers have recorded the fastest pace of recruitment in the sector since records began in 1988.

The milestone is only one of the many positive factors currently contributing to the strong quarter posted by manufacturing SMEs in the UK.

According to CBI’s SME Trends Survey, the sector has experienced another strong quarter of orders and output growth in the three months to July.

Domestic orders and output both rose strongly, for the fourth consecutive quarter, and are expected to grow robustly again in the next three months.

Firms’ optimism about their general business situation also rose, but to a lesser extent than in the last quarter.

However, despite the rise in export optimism, export orders were broadly flat in the three months to July, disappointing expectations for a strong increase.

Nevertheless, firms expect export growth to pick up next quarter.

Smaller manufacturers plan to increase their investment in plant and machinery over the next year, while their expenditure on buildings is expected to stay broadly the same as last year.

Katja Hall, CBI deputy director-general, said: “Smaller manufacturers are settling into a regular growth pattern, with their order books and output growing for the fourth consecutive quarter.

“Firms remain upbeat about their business situation and they are hiring at their fastest rate since 1988.

“But export orders have underperformed this quarter, which may in part be because of the strength of Sterling.

“We need the Government to get behind our small and medium-sized manufacturers to help them to sell their products and services to new markets around the world, giving a sustainable boost to long-term growth.”

Key findings

• Three months to July 36% of small and medium-sized manufacturers reported a rise in new orders, while 22% said they fell, giving a balance of +14%. Orders are expected to increase even more strongly next quarter (+26%)
• 31% of firms said that output increased, while 16% said that it decreased, giving a balance of +15%. Output is expected to grow again next quarter (+19%)
• 36% of firms reported a rise in domestic orders, while 19% said they fell, giving a balance of +17%. Domestic orders are expected to grow again next quarter (+24%)
• 18% of firms said export orders rose, while 20% said they fell, giving a balance of -2%, disappointing expectations of strong growth (+25%).
• Export order growth is expected to pick up next quarter (-2%)
• 31% of firms said they were more optimistic about their business situation, while 11% said they were less optimistic, giving a balance of +20%
• 34% of firms said that employment increased, while 9% said that it decreased, giving a balance of +24% – the strongest pace of growth since records began (October 1988)
• Firms plan to increase their investment on plant and machinery (+9%) in the year ahead, and plan to keep spending on buildings broadly unchanged (+2%)
• More firms highlighted labour shortages as a factor likely to limit capital expenditure (12%), the highest proportion since January 2013 Average unit costs inflation slowed somewhat over the past three months (+5%, compared with +9% the quarter before)
• Domestic prices were broadly flat in the three months to July (-2%), while export prices fell at the fastest pace since October 2009 (-13%).

Source: - 4 August 2014