Optimism wanes for small manufacturers as output takes a dive

Output in the three months to October fell at its fastest pace since January 2013

The strength of sterling is having a big impact on small firms, said Rain Newton-Smith

The UK’s smaller manufacturing companies are suffering more than at any time since the economic recovery began, according to the latest survey of the sector by the CBI.

The business lobby group found output from these businesses in the three months to October fell at its fastest pace since January 2013. Domestic orders also declined for the first time in two years, while export orders plummeted at the quickest rate since the 2009 recession.

Optimism among managers also fell dramatically in the quarter, with just 22 per cent saying they were hopeful for their business, against 29 per cent who said they were not. Small firms’ export aims over the next year were also sharply down.

The latest GDP report from the Office for National Statistics (ONS) shows that the wider manufacturing sector is in a technical recession, with output contracting for three straight quarters.

Rain Newton-Smith, the CBI’s director of economics, said small manufacturers were being badly affected by a stronger pound, although she also noted that they expect conditions to “stabilise somewhat” over the quarter ahead. Trade-weighted sterling is up 6 per cent on a year earlier, as financial traders have raised their expectations of a rate rise from the Bank of England.

According to the ONS, manufacturing output fell by 0.3 per cent in the third quarter of 2015, following a 0.5 per cent decline in the second quarter. Output remains 6.4 per cent below its level in the first quarter of 2008 when the UK collapsed into recession.

Backing up the picture of a struggling small business sector, the Asset Based Finance Association (ABFA) has calculated that unsold inventories have hit £50.9bn, 4 per cent higher than a year earlier. “Some small firms may have expanded capacity too readily after the recession and overestimated demand.. This has led to the rising value of inventory,” said Jeff Longhurst, chief executive of the ABFA.