By Daniel Hunter

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 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.”