Manufacturing SMEs see orders boom – CBI

SMALL and medium-sized manufacturers saw orders grow at the fastest rate in 16 years, leading to another solid rise in output, the CBI said today, but the group warned smaller firms were being being squeezed by intense cost pressures.

The CBI’s latest quarterly SME Trends Survey revealed volumes of domestic and export orders among smaller firms rose at the fastest rate since April 1995. Of the 414 respondents, 39% reported a rise in domestic orders in the three months to April, and 23% a fall, giving a balance of +16%. For export orders, 37% said volumes increased, and 14% said they declined, giving a balance of +23%.

Strong demand at home and abroad, coupled with stock rebuilding, helped push up output further. A balance of +18% of firms said production rose, compared with +13% in the previous quarter.

With demand and output rising, a balance of +16% of firms increased their headcount, the fastest rate since January 1995 (+17%).

But alongside strong growth, production costs have increased rapidly, weighing on profit margins. A balance of +53% of firms said average unit costs rose, the highest since 2008, with the rate of growth accelerating from already strong increases over the past year. That led to sharp rises in average domestic prices (+26%) and export prices (+31%), both in line with expectations. Domestic prices rose at the fastest rate since April 1995 (+32%), and export prices at the sharpest rate since the survey began in October 1988.

Lucy Armstrong, chair of the CBI’s SME Council, said: “Smaller manufacturers are enjoying strong demand for goods at home and abroad, underpinning robust growth in production.

“Headcount has increased for the third consecutive quarter as firms try to keep up with demand, and output is expected to rise again in the coming months.

“However, inflationary pressures remain a dark cloud, with rising oil and commodity prices pushing up the cost of production and eating into profit margins. Manufacturers have raised output prices rapidly to cope, and expect to continue doing so over the next quarter.”

Overall, a net 12% of firms are more optimistic about the general business situation compared to three months ago (+3%).