Order decline slowing, say SMEs

THE rate of decline in orders and output among the UK’s small and medium-sized manufacturers is slowing, according to the CBI’s latest quarterly SME Trends Survey.

Moreover, medium-sized companies are predicting a return to growth in the next quarter, thanks to an improvement in export orders.

Of the 480 small and medium sized firms surveyed, 51% saw the volume of total new orders fall in the three months to July, while 17% reported a rise.

The resulting balance of -34% is an improvement on the previous quarter’s balance of -51%, which was the worst figure since the survey began in 1988.

The volume of manufacturing output continued to fall with 43% of firms saying it declined and 15% saying it rose, giving a balance of -28%. This marked a slower rate of decline than the previous quarter’s survey low of -48%.

Looking ahead to the next quarter, expectations for volumes of total new orders (a balance of -8%) and output (-9%) remain negative for small and medium sized firms as a whole, but medium-sized companies are predicting an export-led bounce in orders and output.

Optimism about the business situation among small and medium-sized manufacturers is falling at a slower rate (a balance of -9%), compared with a balance of -42% in the previous quarter.

Andrew Palmer, CBI regional director for Yorkshire, said: “Business conditions remain difficult for the UK’s small and medium-sized manufacturers. Orders and output are still falling, but things aren’t quite as gloomy as they were three months ago.

“So far, the relative weakness of sterling has not provided firms with much of an export boost. It is therefore encouraging that medium-sized companies are hopeful overseas orders will pick up in the next quarter, helping raise total orders and output.”

Volumes of domestic orders remained weak in the previous three months (a balance of -38%), and are expected to shrink again in the next quarter (-13%).

Despite the relative weakness of sterling and aggressive cost cutting, volumes of export orders shrank by more than expected in the three months to July (a balance of -32%). They are expected to decline again in the next three months, but at a much slower rate (a balance of -9%).

However, firms are the most optimistic about export prospects since April 2007(a balance of 5%), and medium-sized companies expect the volume of export orders to rise in the next quarter (a balance of 27%).

This would push the volume of total orders for medium-sized firms into positive territory (a balance of 10%).

Firms have continued to reduce their headcount in the last three months with 40% cutting staff. Only 8% took on staff, giving a balance of -32% – a slightly slower rate of decline than the previous quarter (a balance of -44%).

Access to credit and finance is continuing to constrain some firms’ export and output plans however – particularly the smallest companies.

Firms are still running down their stocks aggressively and seven out of 10 firms are working below capacity.