Survey: Sharp fall in sentiment among smaller manufacturers, says CBI

SENTIMENT has fallen sharply among the UK’s small and medium-sized manufacturers, with firms predicting a slight decline in production over the next three months, the CBI said today.

Of the 412 respondents to the CBI’s latest quarterly SME Trends Survey, 27% said that domestic orders rose in the three months to October and 27% said that they fell,

The resulting balance of 0% was the lowest since January 2010, with the figure stood at minus 10%.

Over the same period, export orders fell (with a balance of minus 8%) for the first time since October 2009 (minus 13%) which disappointed expectations in the previous survey of a modest increase (plus 8%).

In the next three months, firms now expect a slight fall in domestic orders (with a balance of minus 4%) and virtually no growth in export orders (plus 1%).

Firms also expect to reduce their stock holdings in the coming quarter, with finished goods inventories in particular set to fall (minus 8%), follows continued stock-building over the past three months (plus 10%).

In line with expectations of stagnant orders and falling stocks, manufacturers expect output to fall slightly over the coming quarter (minus 4%), following modest growth in the three months to October (plus 6%).

Sentiment about the general business situation fell for the second consecutive quarter, with a balance of minus 26% of firms reported that they were less optimistic than three months ago, the sharpest fall in sentiment since April 2009 (minus 42%).

Sentiment about export prospects also deteriorated, with a balance of minus 19%, marking the first fall since April 2009.

Lucy Armstrong, chair of the CBI’s SME (Small and Medium-sized Enterprise) Council, said: “Small and medium-sized manufacturers have seen domestic demand flat-lining in the past three months, and will have been particularly disappointed by an unexpected fall in export orders.

“Firms believe demand will remain flat in the coming quarter and they anticipate a small fall in production. As a result, sentiment has taken a real hit, falling at rates not seen since the height of the recession in April 2009.”

Firms increased their headcount (plus 16%) for the fifth successive quarter. However, in line with expectations of weaker activity in the coming quarter, manufacturers expect only a slight increase in numbers employed (plus 4%).

Investment intentions for the year ahead have not improved on the previous survey, with firms still planning to spend less on buildings (minus 20%) and plant and machinery (minus 9%) relative to the previous 12 months.

IOutput price inflation moderated further this quarter. Domestic and export price inflation slowed (to plus 10% and plus 6% respectively), but was still outpaced by a strong rise in average unit costs (plus 30%).

In the next three months, firms expect the rise in costs to moderate (plus 20%), but to still outstrip output price inflation. Domestic price inflation is set to ease further (plus 6%), while export prices are anticipated to continue rising (plus 7%).