Conditions deteriorate for manufacturing SMEs

The CBI has released figures which show declining output from small and medium sized enterprises in the UK.

The figures comes from the CBI’s quarterly SME Trends Survey which had 359 respondents across sectors.

Just 23% of manufacturers responding to the survey said output volumes had increased in the three months running up to July. Twenty eight per cent claimed output had fallen.

The resulting balance of -5% is the first fall since October 2009.

Expectations for the coming quarter show that the majority of firms expect markets to remain flat.

Disappointingly for advocates of export led recovery, export orders fell by around 4% in Q2 2012. The CBI predicts further falls in both export orders and domestic orders in the coming three months.

This outlook is affecting optimism. The quarterly survey showed optimism optimism about the general business situation fell 13% in the three months to July. This reverses the positive impact of high optimism in the first quarter of the year.

The lack of optimism seems to have taken a stranglehold on investment intentions among SMEs.

Investment intentions for plant and machinery is at its lowest level since 2009 according to the survey.

Lucy Armstrong, Chair of the CBI’s SME Council, said that challenging domestic conditions, continuing uncertainty over the Eurozone, and a broader loss of momentum in global growth, are taking to be blamed for the SME setbacks.

“Production has fallen over the last three months and sentiment has deteriorated, while growth in demand has stalled, with little improvement expected in the coming quarter” she said.

Picking out some positives from the dispiriting survey however, Ms Armstrong said that recruitment intentions at SME companies remained firm.

“Smaller manufacturers have stuck by their plans to take on more staff – an increase in numbers employed is perhaps one of the few bright spots in an otherwise muted picture,” she observed.

Despite falling output and orders, SMEs increased headcount in the quarter to July, broadly in line with expectations. Many have said however that they expect to hold off hiring in the next three months.

See TM September for more on the relationship between UK manufacturing, unemployment and national growth prospects. Our lead story for the month includes an interview with the CBI’s director general, John Cridland.