Small and medium-sized manufacturers’ total domestic orders and output grew in the three months to January, while export orders were broadly flat, according to the latest CBI SME Trends Survey.
The latest CBI SME Trends Survey of 437 firms shows that domestic orders increased for the sixth quarter running, while export orders were broadly flat, disappointing expectations of a modest rise.
Domestic orders and output are both expected to grow again next quarter, at a slightly stronger pace.
Despite the highest level of concern since 2013 over the impact on exports of testing economic and political conditions abroad, smaller manufacturers are slightly more optimistic about their overseas trade prospects for the year ahead, and expect a modest pick-up in export orders.
Firms continued to create more jobs in the three months to January, although the rate of growth in employment slowed for the second consecutive quarter. Employment in the sector is expected to grow more strongly over the next quarter.
Smaller manufacturers plan to invest more in plant and machinery and buildings over the next twelve months, with expanding capacity remaining an above-average driver. However over the past two quarters, uncertainty over demand has ticked up as a possible constraint to capital investment.
With inflationary pressures low, both average unit costs and domestic prices were broadly flat, the latter for the third quarter running, and export prices continued to fall.
Rain Newton-Smith, CBI director of economics, said: “Smaller manufacturers are continuing along a steady growth path, with domestic orders and output both rising at a healthy pace. The sharp fall in the oil price should also help, pushing down the cost of production and raw materials for firms.
“But stagnant export orders are dragging on the sector’s performance, mainly because of the sluggish recovery and growing uncertainty in the Eurozone.
“Quantitative easing should inject some new life into Eurozone economies but it won’t be a miracle cure and businesses will have a close eye on Greece, as the new Government sets out its agenda.”
Key findings – three months to January
- 26% of small & medium sized enterprise (SME) manufacturers said they were more optimistic than three months ago, while 13% said they were less optimistic, giving a rounded balance of +14%, up from +9% last quarter
- 32% said their volume of output was up, and 19% said it was down, giving a rounded balance of 12%, which compares with +9% in the previous quarter
- 35% said their domestic orders were up, while 20% said they were down, a balance of +15%
- 18% said export orders rose over the past three months, 21% said they fell, leaving a balance of -3%, compared with -13% last quarter
- The balance for expected export orders over the next three months was +6% and for expected domestic orders was +19%
- Firms’ optimism about their exports prospects for the year ahead rose slightly (+4%), compared with -6% last quarter, and is expected to tick up again in the next three months (+6%)
- Nevertheless, the number of SME manufacturers raising concerns about political and economic conditions abroad affecting export orders rose to 32%, its highest level since April 2013 (+32%)
- 31% small manufacturers are employing more people than three months ago, 18% less. The resulting rounded balance of +12% compares with +17% in the three months to October
- The balance for employment expectations over the next three months is +18%
- Firms are planning to spend more on plant and machinery (+11%) and slightly more on buildings (+4%) over the next twelve months, with expanding capacity a key driver (+41%). But the share of firms citing uncertainty about demand as a possible constraint on capital expenditure rose to +59%, the highest since January 2013 (+64%)
- Average unit costs and domestic prices were both broadly flat over the three months to January at +1% and -2%, respectively. Export prices fell (-9%), but are expected to be flat in the next quarter.
Phil Scholes, SME markets director, npower, sees the potential in undertaking an energy audit, enabling businesses operator to predict future savings, which could be then be re-invested into innovation or revenue generating activities, he said: “While it’s great to see that smaller manufacturers plan to invest more in plant and machinery, economic and political conditions abroad is making it difficult for SMEs to predict overseas sales in the next year.
“In these circumstances, investing in new equipment or premises can seem risky, potentially persuading many manufacturers to delay much needed upgrades or expansion.
“Of course, SMEs have no control over many external factors, but they can take significant steps at home to help fund investment. Chief of these is improving their energy use. Undertaking an energy audit (either independent or from their existing suppliers) typically yields energy savings of between 15-20% and sometimes as much as 40%.
“An independent auditor will take time to understand how the business currently operates, and link these to its expansion plans for the future as this will affect any recommendations. Following this the auditor will examine the business’ energy usage over the past 12 months and undertake an inspection of the business’ facilities to identify and record every piece of energy consuming infrastructure – from the smallest light bulb to the largest piece of equipment.
“Once this process is complete, the auditor is in a position to make recommendations on improving energy efficiency. Crucially each recommendation will be linked to an ROI, enabling the business operator to accurately predict future savings, which could be then be re-invested into innovation or revenue generating activities.”
