UK manufacturers still reeling from September attacks

In the last few months, the rate of decline in orders, output and optimism among SMEs has moderated compared with the sharp falls in confidence reported in October, after the terrorist attacks in the US.

The CBI’s latest survey of small and medium-sized enterprises (SMEs) suggests that September 11 gave businesses a one-off negative shock which produced sharp falls in confidence. Firms were already affected by the global slowdown and continue to be. But in the last few months the rate of decline in orders, output and optimism moderated compared with the sharp falls reported in October.

Twenty-four per cent of firms said total new orders were up over the last four months, 39 per cent said they were down. The balance of minus 15 per cent points to a more moderate decline than the minus 25 per cent recorded in the October survey and is not as bad as the forecast of minus 23 per cent. Small firms reported a sharper drop in total orders than medium-sized ones.

Over the next four months, an expected balance of minus nine suggests SMEs as a whole believe total orders will continue to decline but more modestly. Small firms are again more negative than medium-sized ones.

By contrast, the drop in export orders was worse than expected. A further, though less severe, decline is expected over the next four months. Asked about export prospects for the year ahead, medium-sized companies were much less optimistic than small ones. Over the past four months, medium-sized firms suffered the strongest deterioration in export confidence. A balance of minus 40 per cent for medium-sized firms compares with minus 22 for small firms and minus 24 for SMEs as a whole.

With total new orders declining in the last four surveys, 39 per cent of firms now have less than a month’s guaranteed production on their books, the most since this question was first asked of SMEs in 1988. Another 42 per cent have only between one and three months’ worth of production.

Simon Bartley, Chair of the CBI’s SME Council, said: ‘There is some reassurance in this survey. Manufacturers, particularly smaller ones, continue to face tough times with orders and output still suffering but the rate of decline is slowing. It also seems the slump in confidence in the immediate aftermath of September 11 was short-lived. Firms are a little less gloomy about their export prospects but some sign of a pick-up in global demand is desperately needed.’

Business confidence continued to slide, but by less than in October. In this survey 13 per cent said they were more optimistic and 40 per cent less so. Prices remain the factor most likely to limit export orders. Political and economic considerations declined from the highest recorded figure in the last survey to a level last seen in April 1994.

Employment in SMEs has continued to decline and at a faster rate than expected. But fewer jobs are expected to be shed over the next four months, in contrast to the picture for manufacturing as a whole where job-cutting is expected to remain rife. Despite job cuts among SMEs, average unit costs increased modestly but prices continued to fall, indicating a squeeze on profit margins. That in turn is causing SMEs to cut their plans to invest in plant and machinery.

Note: The CBI survey is derived from the Quarterly Industrial Trends and was carried out between 13 December and 10 January. The total response was 905 manufacturing companies with fewer than 500 employees, of which 750 employed under 200 staff. An SME is a firm employing 0-499 people. A small firm employs 0-199 and a medium-sized firm 200-499.

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