South: CBI survey of SME manufacturers finds production up, optimism well down

The latest CBI Quarterly SME trends survey, based on returns from 472 firms, reports that the UK’s small and medium-sized (SME) manufacturers saw a respectable rise in the volume of output in the three months to July. 

27% said their volume of output was up, and 20% said it was down, giving a rounded balance of +6%; but the expectation is that output will be flat in the next quarter (+1%).

Business optimism, however, fell sharply amid ongoing uncertainty. 8% said they were more optimistic, while 53% said they were less optimistic, giving a rounded balance of -44% which is the sharpest fall in optimism since January 2009.

The survey reported that total new orders and new domestic orders were relatively unchanged (+2%), although firms expect these to fall over the next three months (-10%), which highlights the need for action to raise confidence.

Investment intentions in buildings, planting and machinery have been scaled back, although looking ahead to the next 12 months, SME manufacturers intend to increase spending on product innovation and training for staff to help bridge the UK’s skills gap. There was a rise in employment in the last quarter with the expectation that hiring will remain stable over the next year.

Although the volume of export orders fell again on the previous quarter, optimism about export prospects for the year ahead rose slightly, with SMEs reporting the first improvement in competitiveness in EU and non-EU markets since 2013.  SMEs anticipate that exports will rise in the coming quarter, after no increase since April 2014. However, the proportion of firms reporting political or economic conditions abroad as a factor likely to limit export orders over the next quarter climbed to a record high.

Rain Newton-Smith, CBI director for economics, summed up: “The UK’s SME manufacturers reported higher production, more staff hired and now expect to sell more of their world-class goods overseas over the next quarter, with a weaker sterling having a hand in this. But overall they do feel less optimistic and are scaling back some investment plans in machinery and plants.”

He added: “Business now wants to see the new Government deliver a clear plan and timetable for the EU negotiations ahead, while cracking on with immediate domestic priorities, including a decision on new aviation capacity in the South East, which will help the UK’s SME manufacturers to reach new markets in the future.”