CBI reports rising goods demand

Demand for goods made by the UK’s small and medium-sized manufacturers is improving at home and abroad, and production has stabilised, according to the CBI.

However, the business group warned that cost pressures have intensified and access to credit remains a concern for some smaller firms.

Of the 402 manufacturing firms surveyed for the CBI’s quarterly SME Trends Survey, 36 per cent reported a rise in the volume of total orders in the three months to April and 26 per cent a fall. The resulting balance – the difference between the percentage of manufacturers reporting an increase and those reporting a decrease – of +10 per cent is the first significant growth since January 2008.

A rise in export orders, thanks to the relative weakness of Sterling, accounted for much of the improvement. A third of firms said export order volumes increased and 15 per cent said they declined, giving a balance of +18 per cent, which marks the strongest balance since July 1995 of +21 per cent.

The volume of domestic orders is also said to be stabilising, with 31 per cent of companies reporting a rise and 28 per cent a fall. Manufacturing production remained steady during the quarter with a balance of +3 per cent seeing output grow.

However, firms are seeing profit margins squeezed because of rising commodity and raw material prices, with a balance of +21 per cent of firms reporting a rise in average unit costs.

Access to credit continues to prove a challenge for some firms. 12 per cent cite credit or finance constraints as likely to limit export orders and seven per cent say they are likely to act as a brake on output. Both figures remain above their long-run averages.

Over the year ahead, firms plan to invest more in product and process innovation, as well as training and re-training. However, intentions for investment in buildings and capital equipment remain weak.

‘The UK’s smaller manufacturers are finally reaping the benefits of all their hard work as well as a relatively weak currency,’ said Russel Griggs, chairman of the CBI’s SME Council. ‘Exports are growing steadily, domestic demand and production are stabilising, and firms are feeling more upbeat about prospects.

‘With demand expected to grow in the coming months, manufacturers are thinking about taking on extra staff over the next three months.

‘However, firms are experiencing a sharp rise in raw-material costs, which is squeezing profit margins. But they do expect to recoup some of this by raising prices over the next quarter. It is also still a concern that access to credit remains a headache for some firms.’