Small and medium-sized manufacturers are starting to benefit from the relative weakness of Sterling, with overseas orders stabilising after seven quarters of decline, according to the CBI.

Manufacturing production also steadied, but is expected to fall in the next quarter as overall demand remains weak.

Of the 418 firms surveyed for the CBI’s quarterly SME Trends Survey, 27 per cent said the volume of export orders rose in the three months to January, while 25 per cent  said it fell. The resulting balance of +2 per cent is the strongest figure since January 2008.

Export orders are expected to grow more strongly in the next quarter and firms are the most optimistic about export prospects for the year ahead since October 1995.

Domestic orders continued to decline, but at the slowest rate since April 2008 (-10 per cent ). 23 per cent of firms reported a rise in orders during the past three months and 33 per cent a fall, giving a balance of -10 per cent. Firms expect domestic orders to fall again in the next quarter (-7 per cent ). The volume of total new orders fell in the past three months (-5 per cent), but at a slower rate than the previous quarter (-17 per cent ).

Manufacturing production stabilised in the quarter, thanks in part to the modest improvement in exports. 27 per cent of SMEs said output rose and 26 per cent said it fell. The resulting balance of +1 per cent was above expectations and the highest since April 2008.

However, output is predicted to weaken in the coming months (a balance of -6 per cent ) as total new orders are expected to fall further.

Russel Griggs, chairman of the CBI’s SME Council, said: ‘Smaller manufacturers have been pinning their hopes on the relative weakness of Sterling to boost overseas orders and offset weak demand at home. It is therefore encouraging that exports are now stabilising.

‘Small and medium-sized manufacturers are also expecting overseas orders to grow in the coming months and are the most upbeat about export prospects for 15 years.

He added: ‘However, with the economy only just edging out of recession, conditions will still feel pretty challenging for smaller firms. Domestic orders are likely to remain depressed and firms are expecting output to fall in the next three months.’

Optimism about general business prospects was broadly unchanged at +2 per cent, compared to +9 per cent in the previous quarter.

Close to 10 per cent of small and medium-sized manufacturers are reporting that credit or finance constraints are likely to limit output or export orders in the next quarter.

Smaller manufacturers are continuing to reduce their headcount, albeit at a slightly weaker rate than the previous quarter.

Firms are continuing to de-stock, but at a slower rate, and 66 per cent of firms are working below capacity.