Smaller firms facing increasing cost pressures and limited access to credit

Around 36% of the 400 firms surveyed reported a rise in the volume of total orders in the three months to April while 26% said they had experienced a decline. The resulting balance of 10% is the first significant growth since January 2008. With the relative weakness in sterling, exports have contributed to much of the growth. Just over one in three firms said export order volumes had increased, but 15% said they fallen. The balance of 18% is the strongest since July 1995 when it was 21%. Access to credit, however has continued to prove a challenge for some firms with 12% citing credit or finance constraints as a factor likely to limit their export orders, and 7% said they are likely to act as a brake on output. According to the CBI, both figures remain above their long-run averages. Profit margins, however, are being squeezed from rising commodity and raw material prices, with a balance of 21% of firms reporting a rise in average unit costs. This is the fastest growth in costs since January 2009, and compared with a balance of 9% in the last quarter. Average domestic prices have started to show signs of stability given a balance of 2%, this has come after five consecutive quarters of deflation. The CBI suggested that, it looks likely that output prices will pick up over the next three months by around 11%. Chairman of the CBI's SME Council, Russel Griggs, commented: "The UK's smaller manufacturers are finally reaping the benefits of all their hard work as well as a relatively weak currency. Exports are growing steadily, domestic demand and production are stabilising, and firms are feeling more upbeat about prospects. With demand expected to grow in the coming months, manufacturers are thinking about taking on extra staff over the next three months." Looking ahead total orders are expected to grow again, albeit at a slightly slower rate. Domestic orders are expected to remain stable, while solid growth in exports is anticipated. Given improving demand and a predicted end to de-stocking, output is also expected to grow significantly. There was little change in numbers employed after six consecutive quarters of job cuts, and a balance of 4% of firms expect to increase their headcount in the next quarter. If realised, this would mark the first increase in employment since July 2008. Over the next year, the CBI suggested that firms are planning to invest more in product and process innovation as well as training and re-training but intentions for investment in buildings and capital equipment remain weak.