Smaller manufacturers pass on costs as demand slows

A CBI survey revealed today (12 May) that, to add to the difficult overall business climate, demand for UK manufactured goods has fallen both at home and abroad. Yet despite this, job numbers are growing in the sector, and the smallest firms have been particularly active in hiring new staff. During the three months to April, 51 per cent of respondents to the BBI’s survey said that their average unit costs had gone up, and 7 per cent said they had decreased. The resulting balance of +43% is the strongest in over 20 years, driven by much higher energy and raw material costs. SME manufacturers are now passing on these growing cost pressures to customers. A balance of +20% of firms raised domestic prices over the last three months, which is the strongest since April 1995, and a similar number expect to do so in the coming three months. Export prices grew at a slower rate overall, but were much stronger for medium sized firms. The volume of export orders fell unexpectedly, despite the weaker pound. Medium-sized firms were hit quite markedly, and bullish expectations of export growth were disappointed as orders fell at their fastest rate since April 2002. Optimism about the overall business situation again fell, as did optimism about export prospects for the year ahead. Plans to invest in plant and machinery have weakened and intentions to invest in buildings remain weak. Overall, SME manufacturers expanded their workforce over the past three months, but there was a stark difference between the smaller firms - where a balance of +12% taking on more staff was the highest since April 1995 - and the medium-sized firms, where a net 8% cut jobs. Russel Griggs, Chairman of the CBI's SME Council, said: "The uncertain wider economic climate has resulted in some mixed findings. What is certain is that small and medium-sized manufacturers are continuing to feel the impact of higher fuel and raw material costs, and that they are now having to pass these on to customers. "While the drop in export orders is worrying, particularly for medium-sized firms, there are some more encouraging signs: smaller firms have been quite bullish about taking on extra staff, and some growth in output is forecast for the months to July."