Demand for goods expected to stabilise report shows

DEMAND for goods made by the UK’s small and medium-sized manufacturers is expected to stabilise in the next quarter, according to the CBI.

The business organisation’s latest SME trends survey shows that firms are the most optimistic about the situation for businesses in two-and-a-half years.

Of the 424 firms surveyed, 40% saw the volume of total new orders decline in the three months to October, while 24% reported a rise.

The resulting rounded balance of -17% marks an improvement on the previous quarter’s balance of -34%. In the coming three months, firms expect total orders to stabilise to a balance of 1%.

As a result, the number of companies feeling more optimistic about the general business situation is the highest since April 2007.

The volume of manufacturing output declined further during the last quarter with 35% of firms reporting a fall, and 22% a rise, giving a rounded balance of -14% compared with a balance of -28% in the previous quarter.

However, output expectations for the next three months remain negative.

Russell Griggs, chairman of the CBI’s SME council, said: “It is good to see that both small and medium-sized firms feel more positive about business prospects and hope that orders will stabilise in the coming three months.

“However, current conditions remain challenging for many small and medium-sized UK manufacturers, with orders and output still falling and uncertainty about demand a major concern.”

The report also found that volumes of domestic orders fell in the past three months, although the balance of -19% is less negative than it has been for 18 months.

Export orders continued to fall despite an expectation among medium-sized firms that they would rise although firms continue to hope that overseas orders will stabilise.

SMEs continue to feel more optimistic about prospects for exports in the year ahead, with a balance of +10% – an increase on last quarter’s two-and-a-half year high of +5%.

However, the proportion of medium-sized firms saying that limited access to finance is likely to limit their investment plans at a record high of 30%. 

Mr Griggs added: “It is disappointing that the export bounce, which medium-sized firms had hoped to see, failed to materialise.

“Accessing finance remains a particular problem for this size of business, with a record proportion saying it is affecting their ability to invest.”