Orders and output fall - but SME manufacturers optimistic on exports
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Small and medium-sized manufacturers saw orders and output continue to fall in the three months to April, though firms are expecting both to grow in the next quarter.
According to the CBI's latest SME Trends survey, the decrease in new orders was driven by falls in both domestic and export demand.
But despite weaker than expected activity, the survey suggested there optimism about the overall business situation has steadied, following three quarters of decline. Meanwhile, optimism about export prospects rose for the first time in a year.
Employment in the sector ticked up in the three months to April, and manufacturers expect a modest increase in headcount in the coming quarter.
Elsewhere, both domestic and export price inflation were broadly the same quarter-on-quarter, but growth in average unit costs was the fastest since October 2011, squeezing manufacturers' profit margins once again. Pressure on margins will persist in the coming quarter, with domestic prices expected to rise only slightly, and exports to be flat, against a backdrop of strong cost inflation.
Investment plans for the year ahead were broadly unchanged, with no sign of an improvement in credit conditions.
CBI director of economics Stephen Gifford said it had been another disappointing quarter for small manufacturing firms, but the recent weakening in sterling had boosted the competitiveness of the UK's smaller manufacturing firms, with a strong pick-up in export orders predicted.
"But," Gifford concluded, " conditions will remain challenging for the sector. Fears about the impact of political and economic conditions abroad on export demand have risen and there is little sign in this survey that credit conditions are improving."
