Rising costs and falling orders hinder sector

Posted on 12 Aug 2008 by The Manufacturer

The CBI has announced record growth in the costs faced by small- and medium-sized manufacturers, which is resulting in domestic price rises as the firms attempt to limit the profit margin squeeze.

A balance of +62 per cent of respondents to the CBI’s latest survey reported average unit cost rises during the three months to July – the strongest result since the survey began in April 1994.

The survey also showed a balance of +20 per cent of firms to have made domestic prices raises over the past three months – which is little changed from April’s survey results – but the price increases are expected to sharpen again in the ensuing three months (+27 per cent).

Export order levels did not stabilise as had been predicted – instead, a balance of -9 per cent reported a fall. Domestic order levels also dropped instead of stabilising, and are likely to fall yet further in the three months ahead.

On a brighter note, the number of jobs in SME manufacturers in the past three months was better than expected, with an overall balance of +6 per cent of firms expanding their workforce.

Perhaps unsurprisingly under current economic conditions, optimism about the overall business situation fell by a balance of -39 per cent – a sharper rate than in April (-20 per cent). Plans to invest in buildings, plant and machinery have suffered, and intentions to spend on R&D and training over the next 12 months have flattened.

“Although pockets of stronger performance do exist in the manufacturing world, it is a real concern that orders and output have fallen and are set to fall again,” said Russel Griggs, chairman of the CBI’s SME Council. “There is no doubt this is a challenging time for many small- and medium-sized firms. Many are trying to stay on top of higher energy and raw material costs, and are finding it difficult to pass these onto customers through higher prices.”