High costs squeeze smaller manufacturers

These tough conditions, combined with a fall in both domestic and export orders over the past three months, have also knocked business sentiment. During the three months to July, 65% of survey respondents said their average unit costs had increased, and 3% said they had gone down. The resulting balance of +62% is the strongest since the survey started in April 1994. Only some of these growing cost pressures are being passed onto customers and consumers, as a balance of +20% of firms raised domestic prices over the past three months. This rate matches April's, which was the strongest since April 1995, and the price increases are expected to sharpen again in the coming three months. The price of SME manufactured exports also grew, but at a slower overall rate. This is also predicted to increase over the next three months. Export order levels did not stabilise as firms had expected but fell instead, with a balance of -9% reporting a drop. Domestic order levels also fell instead of stabilising, with further drops expected in the three months ahead. More positively, the number of jobs in SME manufacturers in the past three months was better than expected, with an overall balance of +6% of firms expanding their workforce. This increase was mainly driven by smaller firms, but both small and medium-sized firms expect to cut jobs in the coming three months at the fastest rate in five years. The gloomy business climate saw optimism about the overall business situation fall by a balance of -39%, which is a sharper rate than in April (-20%). Plans to invest in buildings and plant & machinery have further weakened since April, and intentions to spend on R&D and training over the next 12 months have flattened. Russel Griggs, chairman of the CBI's SME Council, said: "Although pockets of stronger performance do exist in the manufacturing world, it is a real concern that orders and output have fallen and are set to fall again. There is no doubt this is a challenging time for many small and medium-sized firms. Many are trying to stay on top of higher energy and raw material costs, and are finding it difficult to pass these onto customers through higher prices."