Business optimism has edged higher for the UK’s small and medium-sized (SME) manufacturers over the past quarter, whilst attitudes regarding export prospects for the year ahead has risen strongly.
In a survey of 423 firms, 25% of SME manufacturers said they were more optimistic, while 21% said they were less optimistic, giving a balance of +4%, according to the latest CBI Quarterly SME trends survey.
The research also revealed that total new orders edged up slightly in the three months to October, while output rose modestly. Thirty per cent said their volume of output was up, and 21% said it was down, giving a rounded balance of +10%.
An additional 30% said their total new orders were up, while 26% said they were down, giving a balance of +4%. Firms expect a strengthening in orders growth next quarter (+13%)
Overall, exports orders were flat on the quarter, but this marked the first time that they had not fallen since mid-2014. Robust growth in export orders is anticipated over the next three months, with expected growth the strongest since the data series began, in October 1988.
But while optimism about export prospects over the year ahead grew strongly, at the fastest pace since April 2014, SME manufacturers reported that average unit costs at home are rising at the fastest pace since April 2013, and are expected to continue to increase over the next three months.
Over three quarters (29%) of firms reported that average unit costs had risen, while 10% said they had fallen, leaving a rounded balance of +18%.
Rain Newton-Smith, CBI chief economist, said: “Smaller manufacturers are increasingly confident about their export prospects in the months ahead as they continue to reap benefits from the weaker Pound. But this is also leading to a rise in costs at home.
“While investment intentions have improved, uncertainty among businesses remains high, and so the Government must prioritise measures to ensure that firms keep investing ahead, like removing new plant and machinery spending from business rate calculations.”
Numbers employed have grown for the fourteenth consecutive quarter, as 19% of SME manufacturers are employing more people than three months ago. But at the slowest pace in almost two years, and headcount is expected to be flat over the next three months.
Investment intentions have improved, following a deterioration in the wake of the referendum. Planned spending on buildings has moved above its long-run average, while firms expect to keep expenditure on plant & machinery unchanged.
However, labour shortages as an expected limitation to investment have picked up, which was cited by 15% of respondents. This is the highest since January 1989 (16%), but similar to the level seen at the end of 2007 (14% in October 2007).
Ms. Newton-Smith added: “Setting the right environment for firms to innovate must be at the heart of the Autumn Statement, so the Government should commit to a long-term target for R&D spending of 3% of GDP, getting behind Innovate UK and our catapult centres.”