Smaller manufacturers reported increased output over the last quarter but soaring costs and lack of orders continue to suppress optimism.
The CBI quarterly survey of small and medium-sized companies (SMEs), released today, shows a modest rise in output, the best for seven years. A further rise is expected over the next three months.
The report cautions that unit costs have risen continuously for the past five years and are now rising at the fastest rate for nine years. The rise in costs has been driven by fuel and materials.
The survey also shows that total orders remained broadly flat over the past three months. Thirty per cent of firms saw orders rise and 27 per cent saw them fall. The balance of plus three per cent compares with a balance of minus 10 per cent in the previous survey. Companies are expecting orders to increase over the next three months with medium-sized firms expecting the most significant growth.
While small firms reported a further fall in export orders, medium-sized companies reported no change over the past quarter. Firms are optimistic about an increase in the next quarter but expectations over the past year have not been realised. The percentage of firms citing prices as a restraint on exports increased over the past quarter.
Business optimism remains relatively unchanged but this is unsurprising given the lack of new orders and increased costs.
Employment was static over the last quarter and is expected to remain so over the next three months.
Manufacturing SMEs continue to plan to scale back their investment in buildings, plant and machinery. However, spending on innovation, training and retraining is forecast to rise at a strong pace over the next 12 months.
“Smaller manufacturers are facing an uphill struggle with costs soaring at the fastest rate for nine years,” commented Hugh Morgan Williams, Chair of the CBI’s SME Council. “The survey shows that some firms managed to increase their prices for the first time in nearly nine years but they are not rising at anything like the same rate as costs and margins are continuing to fall for many.
“The manufacturing sector needs a period of long-term stability in the economy. Firms will be hoping that interest rates can remain on hold for the foreseeable future but they are also looking to government to lighten the regulatory load which adds even more to costs, especially for smaller firms.”