SMEs report first increase in orders for over three years

The latest CBI quarterly survey of small and medium-size firms indicates that orders have risen for the first time in over three years.

Smaller manufacturers have seen orders rise for the first time in over three years, with confidence climbing at the fastest rate since April 2002.

But the latest CBI quarterly survey of small and medium-size firms, published today, also shows that the strength of sterling is holding back exporters, disappointing January’s strong expectations for overseas orders.

Total orders rose over the past quarter, with 33 per cent of firms saying new orders were up and 28 per cent saying they were down. The balance of plus five per cent compares with plus one per cent in January and minus 25 per cent in October 2003. This modest increase represents the first growth in orders since January 2001. A balance of plus six per cent of firms now predict orders will rise further over the coming quarter.

Export orders failed to increase in line with total orders, despite firms predicting the strongest increase since July 1996. The flat balance recorded in the CBI survey compares with plus two per cent in January. A balance of plus seven per cent of companies now expect orders to rise over the next three months.

Overall optimism is now improving at the strongest rate for two years. A balance of plus 14 per cent in the survey compares with plus ten per cent in the previous survey.

Output increased for the first time since January 2000, albeit from a low base. The balance of plus four per cent compares with minus one per cent in January and minus 21 per cent in October 2003. A balance of plus nine per cent of firms now expect output to rise over the coming three months.

Job cutting continued over the past quarter among small firms but medium-size companies recorded the first increase in employment since January 1998.

Hugh Morgan Williams, Chair of the CBI’s SME Council, said: “Though the increase in orders is relatively modest, it will mean an awful lot to smaller manufacturers who last saw orders rise in early 2001.

“Confidence is on the up and while jobs are still being lost among the smallest firms, it is encouraging to see medium-size companies increasing employment for the first time in over six years. Exporters will be watching the level of sterling closely and manufacturers of all sizes will be hoping oil and other commodity prices do not rise any further.”

Companies do not plan to increase investment in buildings, plant and machinery but do intend to increase spending on innovation and training.

Costs rose over the past three months at the fastest rate since October 1995, maintaining the pressure on profit margins, even though prices declined at the slowest rate since April 2002.

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