Recovery continues for smaller manufacturers, despite weaker global picture

Small and medium-sized (SME) manufacturers’ output grew over the last three months though less quickly than in the previous quarter, according to the CBI’s latest SME Trends Survey.

But demand for the goods made by the 406 manufacturers surveyed was stronger at home than abroad. Domestic orders rose for the fifth quarter in a row in the three months to October, while export orders fell sharply, despite firms expecting modest improvement.

Prospects for the next three months are better. Firms predict export orders will stabilise and domestic orders will continue to grow.

There was more good news on jobs, with numbers employed rising briskly for the third quarter in a row. And, employment is expected to go on rising over the next three months, though at a slightly slower pace.

Fears that a lack of skilled workers will hold back firms’ ability to meet demand reduced, though concern is still above its long-run average.

Rain Newton-Smith, CBI director of economics, said: “It’s reassuring to see smaller manufacturers sharing in the continuing recovery, with optimism, output and jobs all rising over the last three months. Sales in the strengthening UK market are looking good but firms are finding export orders much harder to secure.

“International political instability and weak growth in the eurozone is holding back overseas demand.

“But, sentiment is still improving and firms expect overall orders and output to expand at a healthier pace over the next three months.”

Key findings – three months to October

– 26% of small & medium sized enterprise (SME) manufacturers said they were more optimistic than three months ago, while 16% said they were less optimistic. The rounded balance of +9% is the weakest since July 2013 when it was also +9%

– 28% said their volume of output was up, and 19% said it was down, giving a balance of +9%, which compares with +15% in the previous quarter.

– 36% said their domestic orders were up, while 22% said they were down, a balance of +14%

– 12% said export orders rose over the past three months, 26% said they fell, leaving a rounded balance of -13% the weakest since October 2012 when the balance was -21%

The balance for expected export orders over the next three months was +4% and for expected domestic orders was +17%

– 29% are employing more people than three months ago, 12% less. The resulting balance of +17% compares with +24% in the three months to July

– The balance for employment expectations over the next three months is +10%

– 64% of SME manufacturers said orders or sales would limit output over the next three months while 19% cited skills shortages

Average unit costs and domestic prices were both broadly flat over the three months to October at +3% and -3%, respectively. Export prices fell slightly stronger than expected -8%, but are expected to be broadly stable -3% in the three months to January