Optimism among small and medium-sized manufacturers falls for first time in year, finds CBI

There were mixed fortunes for smaller manufacturers, according to the Confederation of British Industry's latest SME Trends Survey

Overall, manufacturers reported a rise in export orders in the previous three months (Getty)

Optimism among small and medium-sized (SME) manufacturers has fallen for the first time in a year, according to the Confederation of British Industry’s (CBI) latest SME Trends Survey.

Of the 374 SME manufacturers the CBI surveyed, 13 per cent said they were more optimistic than a year ago compared with 19 per cent who said they were less optimistic, giving a net balance of –6 per cent.

“The latest survey suggests mixed fortunes for our smaller manufacturers. While growth in new orders has held up and headcount has risen strongly, output growth has lost some steam over the last quarter. Coupled with ongoing pressure from labour shortages, it’s understandable that optimism among manufacturers has fallen,” said Alpesh Paleja, an economist at the CBI.

Mr Paleja suggested the 22 November Budget as an opportunity for the Government to help improve the situation.

“The Chancellor should use the Budget to fire up our factories by reforming business rates, and setting out a clear plan to bring the UK’s industrial strategy to life,” he said.

In the CBI research, manufacturers reported an overall rise in orders driven by both export and domestic demand in the previous three months. Of those surveyed, 30 per cent said their export orders rose over the past three months while 11 per said they fell. Twenty-three per cent anticipated that growth in export orders will improve over the next three months.

Meanwhile, 35 per cent of firms reported that their domestic orders had increased, while 22 per cent said they had decreased. However, firms expected weaker growth of domestic orders over the next quarter.

Firms also said that they expected investment to be cut back for plant and machinery (–5 per cent) and buildings (–8 per cent). Labour shortages were a limiting factor on investment for 23 per cent of firms, the highest since CBI records began in October 1988.

Firms’ output growth also slowed over the previous three months. Among those surveyed, 25 per cent said their output was up while 17 per cent said it was down, giving a balance of +8 per cent. However, manufactures expect a modest pick-up in the coming quarter.

The proportion of firms working below capacity fell to its lowest since April 1989 at 44 per cent.

Domestic prices and unit costs grew by 18 per cent and 29 per cent respectively. Meanwhile, export price growth slowed to 14 per cent.

On the plus side, the survey did show, however, that employment growth is expected to remain robust over the next quarter. Among SME manufacturers, 37 per cent were employing more people than three months ago while 13 per cent were employing less, a net balance of 25 per cent.

A separate survey of more than 1,000 decision-makers and owners of UK SMEs, conducted by same-day distribution company CitySprint and also released on Wednesday, found that 77 per cent of firms are as confident or more confident about the future of their business now than they were 12 months ago. That, however, was a significant drop from the 85 per cent figure recorded in its 2015 report. Among those CitySprint surveyed, 43 per cent said they lack confidence in the Government’s ability to protect their business from the impact of Brexit.