SME Maufacturers Expect Rise in Orders and Production

Business sentiment among the UK’s small and medium-sized manufacturers rose for the first time since mid-2011, and orders and production are expected to grow solidly over the next quarter.

In the CBI’s latest quarterly SME Trends Survey, which had 356 respondents, a balance of +22% said they were more optimistic regarding the business situation in the three months to April. This figure represents the first rise in sentiment in a year (+12% in April 2011).

Over the past three months the volume of total new orders rose modestly (+8%), and is expected to see faster growth over the next three months (+27%), driven by upturns in both domestic (+22%) and export order (+23%) growth.

Output was broadly flat for the second quarter running (+1%), but, like orders, is expected to see a significant increase in the next three months (+19%).

Similarly, SMEs also expect to increase employment (+16%) in the next quarter, having held headcount steady in the three months to April (+1%).

With sentiment recovering, firms are raising their investment intentions. Respondents plan to raise capital expenditure in the year ahead compared to the past twelve months, with investment intentions for plant and machinery turning positive (+13%) for the first time in a year.

However, economic uncertainty continues to be a factor influencing sentiment. Although SMEs expect export orders to rise, concern about political and economic conditions limiting export demand has continued to pick up (cited by 43% of respondents). Nonetheless, orders and sales have fallen back as a factor likely to limit output in the coming quarter (67%, compared to 76% in January).

Lucy Armstrong, Chair of the CBI’s SME Council, said:

“Small and medium-sized manufacturers are feeling more optimistic for the first time in a year, an encouraging development given the important role that they play in our economy.”

“Indeed, firms expect orders and output to rise strongly in the coming quarter and plan to invest more in the year ahead, pointing to growing momentum in manufacturing activity.”

Elsewhere, growth in average unit costs (+20%) continued to outpace broadly flat domestic and export output prices (+3% and +1%). However, domestic output prices are expected to rise in the next three months (+11%), and growth in costs is expected to ease slightly (+16%).

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