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Smaller manufacturers remain 'gloomy' according to latest CBI SME quarterly trends survey

08 February 2012

Sentiment among the UK’s small and medium-sized manufacturers fell for the third quarter running in the three months to January, as output stagnated and orders fell against a backdrop of heightened economic and political uncertainty, the CBI finds in its latest quarterly SME Trends Survey. Some 26% said output rose while 25% said that it fell, and the resulting balance of +1% marks the first time that output has not risen since April 2010.

Domestic orders fell for a balance of -17% of firms and export orders fell for the second quarter running (-10%), both at the fastest rates since October 2009 (-19% and -13% respectively). In the next three months, firms expect domestic demand to fall further (-7%) but predict export orders will stabilise (-1%).

Concern over political and economic conditions abroad have risen sharply in the latest survey. 33% of firms believed that this would limit export orders in the next three months, the highest proportion since October 2008 (33%) and well above its long-run average (21%).

Fragile conditions in the manufacturing sector continued to weigh on confidence. Sentiment about the general business situation fell for the third quarter in a row, with a balance of -20% of firms less optimistic than they were three months ago. Sentiment about export prospects also fell (-15%), for the second consecutive quarter.

Lucy Armstrong, Chair of the CBI’s SME Council, said: “Sentiment among small and medium-sized manufacturers fell sharply again in the past three months, brought down by rising concerns about the ongoing Eurozone crisis, which has led to falling orders and stagnant output. While figures for the next three months point to some stabilisation, the manufacturing sector is still facing significant headwinds, which can only add to existing uncertainty over demand and growth.”

For the sixth consecutive quarter, numbers employed in small and medium-sized manufacturers increased (+12%), although a slower rise is expected in the coming quarter (+4%).

Elsewhere, the pace of average cost inflation slowed significantly in the past quarter (+19% from +30% in November). At the same time, however, output price inflation came to a standstill, with both domestic prices (0%) and export prices (-1%) flat in the past three months.

However, firms expect costs to rise at a slower pace again in the next three months (+13%), while domestic and export price inflation are expected to pick up a little (+9% and +8% respectively), helping to alleviate some of the recent squeeze on profitability.

Investment intentions remained subdued. In particular, no change is expected in spending on plant and machinery relative to the past year (0%). However, this is still a modest improvement on negative intentions in the previous two surveys.

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