By Max Clarke

Confidence amongst Britain’s smaller manufacturers has fallen, with the majority of manufacturers anticipating no growth of demand over the coming quarter.

Around 18% of manufacturers surveyed by the Confederation of British Industry (CBI) thought they were more optimistic about the future, whilst 28% were less so, making a balance of -10%- a noticeable decline in situation.

“Orders and production have been strong for the UK’s smaller manufacturers this quarter,” Lucy Armstrong, Chair of the CBI’s SME Council, “but growth is expected to stagnate in the next, and sentiment has fallen for the first time in two years. Confidence has also been affected by global economic and political uncertainty over issues such as the euro crisis and the US debt ceiling.

Manufacturers are suffering to such an extent that they are reappraising their business plans in order to accommodate lowered decline.

One positive change has been an increase in headcount among 17% of manufacturers- the fastest since January 1995.

In addition, investment intentions for the year ahead have weakened. Firms are planning to spend less on plant and machinery relative to the previous twelve months (-8%), with the survey balance turning negative for the first time in a year. Fewer firms are planning to expand capacity, and significantly more firms plan to invest only in replacing existing capital in the year ahead, with this proportion (58%) now the highest on record since the survey began in October 1988.

Cost and price inflation moderated considerably this quarter. Domestic and export price inflation slowed (+18% and +14%) from sharp spikes in April, and growth in unit costs also fell back (+34%).

A further easing in domestic price inflation is expected in the next three months (+8%). Export prices are anticipated to rise at a similar pace to this quarter (+11%), with both rates of growth still above their long-run averages. Cost inflation is also set to moderate, but remain relatively more elevated (+26%).

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