Export orders for small and medium sized (SME) manufacturers have grown for the first time in over a decade, and are expected to continue rising, according to CBI research published today.
The latest SME Trends Survey also showed that the volume of total new orders, which includes domestic orders, has been growing at its strongest rate for nine years. Medium sized firms are faring particularly well and expect significant increases in orders over the next three months.
Optimism about the general business situation has improved for the first time in over two years, reflecting a feeling of continued recovery after a long period of declining orders.
Output has grown over the past three months, following on from the previous quarter’s recovery, but not by as much as firms had predicted. The outlook remains strong, with firms expecting higher growth in output in the quarter ahead.
However, average unit costs for SMEs have continued to rise sharply, although the rate of growth is expected to ease off over the coming months.
Over the last three months while small firms cut employment, medium-sized firms increased staff numbers. Employment among SMEs as a whole is forecast to remain relatively stable over the coming quarter, in contrast to expectations of 23,000 job losses across the whole manufacturing sector.
Steve Sharratt, Chairman of the CBI’s SME Council, said: “These results are very encouraging and prove that the green shoots of recovery seen earlier in the year have continued to flourish.
“Healthy order volumes have helped lift optimism after years of tough conditions, but profit margins continue to remain tight and costs are still rising.
“While things are clearly moving in the right direction there is no guarantee that this momentum will be maintained. Policy makers must nurture this sector to ensure continued growth.”
Twenty four per cent of firms said the volume of export orders had grown over the last three months, against 21 per cent who said it had fallen, giving a balance of plus three per cent. A balance of 32 per cent of medium firms expect orders to continue growing in the coming quarter, while a balance of seven per cent of small firms agreed.
When asked about the volume of total new orders, a balance of six per cent said orders had risen over the past three months, and a balance of nine per cent predict a further rise over the three months ahead.
The picture for the volume of domestic orders was weaker, with a balance of minus two per cent stating that domestic orders had fallen over the past three months, which confounded a forecast +4 per cent. The outlook is better, with a balance of +6 per cent expecting domestic order growth.
Business optimism among SMEs was upbeat, and a four per cent balance reported that the situation would improve. This masked a big difference between small firms (-1%) and medium firms (+18%).
SMEs reported that average unit costs had risen by more than expected (a balance of 32% reported a rise, compared with the forecast +26%). A balance of 18 per cent predict that costs will rise in the coming quarter.
Plans to invest in buildings and plant and machinery are falling, while spending on training and product & process innovation is forecast to rise over the next twelve months.