Output rises, optimism falls for SME manufacturers

Posted on 3 Aug 2016 by Jonny Williamson

Small and medium-sized UK manufacturers saw a rise in the volume of output in the three months to July, but business optimism fell sharply amid ongoing uncertainty. That’s the finding of the CBI’s latest quarterly SME trends survey.

Manufacturers Manufacturing Welding Stock Image
There was also rise in employment in the past quarter, with the expectation that hiring will remain stable over the next.

Total new orders and new domestic orders were relatively unchanged, although firms expect these to fall over the coming three months highlighting the need for action to raise confidence, according to the survey of 472 firms.

The survey found that business optimism fell at its fastest pace since January 2009 in the past quarter; and although investment intentions in buildings, planting and machinery have been scaled back, SME manufacturers intend to increase spending on product innovation and training for staff to help bridge the UK’s skills gap over the coming 12 months,.

There was also rise in employment in the past quarter, with the expectation that hiring will remain stable over the next.

Optimism about export prospects for the year ahead rose slightly, with SMEs reporting the first improvement in competitiveness in EU and non-EU markets since 2013.

Although the volume of export orders fell again on the previous quarter – SMEs anticipate that they will rise in the coming quarter, after no increase since April 2014. However, the proportion of firms reporting political or economic conditions abroad as a factor likely to limit export orders over the next quarter climbed to a record high.

Rain Newton-Smith, director of Economics, CBI
Rain Newton-Smith, director of Economics, CBI.

CBI director for economics, Rain Newton-Smith commented: “The UK’s SME manufacturers reported higher production, more staff hired and now expect to sell more of their world-class goods overseas over the next quarter, with a weaker sterling having a hand in this.

“But overall they do feel less optimistic and are scaling back some investment plans in machinery and plants.

“Naturally, much of the concern is related to uncertainty and business wants to now see the new government deliver a clear plan and timetable for the EU negotiations ahead, while cracking on with immediate domestic priorities, including a decision on new aviation capacity in the South East, which will help the UK’s SME manufacturers to reach new markets in the future.”

Key findings – three months to July:

  • 8% of SME manufacturers said they were more optimistic, while 53% said they were less optimistic, giving a rounded balance of -44% – the sharpest fall in optimism since January 2009 (-71%)
  • 27% said their volume of output was up, and 20% said it was down, giving a rounded balance of +6%. Companies expect output to be flat in the next quarter (+1%)
  • 26% said their domestic orders were up, while 24% said they were down, giving a balance of +2%. Firms domestic orders to fall next quarter (-10%)
  • 15% said export orders rose over the past three months, 23% said they fell, leaving a balance of -8%, but firms anticipate export orders to grow over the next three months (+9%).
  • Firms were a little more optimistic about their exports prospects for the year ahead (+4%)
  • The proportion of SME manufacturers citing concerns about political and economic conditions abroad as likely to limit export orders were at a survey record high (49%)
  • 28% of SME manufacturers employed more people than three months ago, and 13% employed fewer, leaving a balance of +15%. Hiring intentions are flat for the next quarter
  • Plans for capital spending in the year ahead fell for both plant and machinery (-16% – lowest since July 2009) and buildings (-24% – lowest since October 2009)
  • Meanwhile, investment in product & process innovation is expected to rise at a moderate pace (+7%), as is spending on training & retraining (+8%).