SMEs under pressure

According to the CBI, smaller UK manufacturers have seen total orders decline at the fastest rate for a year, with confidence falling for the first time in 12 months.

Smaller manufacturers have seen total orders decline at the fastest rate for a year, with confidence falling for the first time in 12 months. The Confederation of British Industry (CBI) quarterly survey of small and medium-sized companies, released today, reveals that recovery is proving elusive for the struggling sector.

With the MPC minutes released yesterday, the employers’ body stresses that “only an unexpectedly strong demand upturn could justify a further interest rate rise at this stage”.

The survey shows that 33 per cent of firms saw total orders fall and 23 per cent saw them rise. The balance of minus ten per cent is the largest fall since October 2003 and compares with a balance of minus three per cent in the previous survey. Companies now expect a further fall in total orders over the coming three months, but at a more moderate pace.

Export orders also fell at the fastest rate for 12 months despite expectations of an increase. Firms now expect a further decline in export orders over the coming quarter.

Falling domestic and export orders have led to the first fall in confidence for a year. A balance of minus 14 per cent in this survey compares with plus one per cent in July and plus 14 per cent in April.

Costs rose over the past three months at the fastest rate for nine years. This has maintained the pressure on profit margins despite the eight-year decline in prices coming to an end. Employment was static over the past quarter but firms now expect to cut jobs over the coming three months.

Hugh Morgan Williams, Chair of the CBI’s SME Council, said: “Smaller manufacturers have endured their toughest quarter for a year. Recovery is proving elusive as companies struggle with commodity costs that have hit record highs. Confidence has slumped with orders falling at home and abroad.”

On interest rates, he said: “Manufacturers of all sizes will be hoping that interest rates are either at or extremely near their peak. Only an unexpectedly strong demand upturn could justify a further interest rate rise at this stage.”

Companies plan to scale back investment on buildings, plant and machinery but do intend to increase spending on innovation and training.

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