CBI survey shows SME manufacturers output fell in the three months to October as domestic and export orders dropped.
According to the report, 434 smaller firms showed that output fell at the fastest rate since January 2013.
Exports fell for the at their fastest pace since 2009 and domestic orders also fell for the first time in more than two years.
Despite the current issues, next quarter domestic orders and output are expected to steady in the coming quarter for SMEs, while exports are expected to decline at a slower pace.
The numbers of people employed weakened in the last quarter and employment isn’t expected to change much at all through January.
Business optimism fell for the first time since January 2013 and so did optimism over export prospects for the coming year.
Firms no longer expect to increase expenditure on product and process innovation in the year ahead.
CBI director of economics, Rain Newton-Smith commented:“As demand has fallen, especially in the face of a strengthening pound, our smaller manufacturers have had a tough quarter, with orders and output volumes dropping.
“Manufacturers expect conditions to stabilise somewhat over the quarter ahead, but remain concerned about the outlook for demand.
“Innovation and technology are crucial to driving productivity, and that’s why it’s vital the Government uses the Comprehensive Spending Review to prioritise spending that supports skills and innovation, spurring a revival in productivity growth in the UK.”