UK: Confidence rising among SMEs despite slow start to 2013, says CBI

Stephen Gifford, director of economics at the CBI

Stephen Gifford, director of economics at the CBI - Credit: Archant

SMALL and medium-sized firms (SMEs) were hit by continued falling output and orders in the first three months of 2013, a survey has found.

But despite the disappointing start to the year, including for exports, they are expecting both to grow in the next quarter, according to business organisation the CBI’s latest SME Trends survey.

Output fell for the fourth consecutive quarter, but manufacturers do expect it to grow slightly over the next three months, on the back of strong predicted growth in export orders.

They also expect domestic orders to stabilise.

Despite weaker than expected activity, optimism about the overall business situation has steadied, following three quarters of decline. Meanwhile, optimism about export prospects rose for the first time in a year.

Employment in the sector moved up in the three months to April, and manufacturers expect a modest increase in headcount in the coming quarter.

Domestic and export price inflation were broadly the same quarter-on-quarter, but growth in average unit costs was the fastest since October 2011, squeezing manufacturers’ profit margins once again.

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Pressure on margins will persist in the coming quarter, with domestic prices expected to rise only slightly, and exports to be flat, against a backdrop of strong cost inflation, according to the CBI.

Investment plans for the year ahead were broadly unchanged, with no sign of an improvement in credit conditions.

Stephen Gifford, CBI Director of Economics, said: “It’s been another disappointing quarter for small and medium-sized manufacturing firms, who have seen new orders and output continue to fall.

“Nonetheless, firms do expect to raise output a little in the coming three months. The recent weakening in Sterling will have boosted the competitiveness of the UK’s smaller manufacturing firms, with a strong pick-up in export orders predicted.

“But conditions will remain challenging for the sector. Fears about the impact of political and economic conditions abroad on export demand have risen and there is little sign in this survey that credit conditions are improving.”

Key findings included a 23% of firms reporting an increase in total orders against 37% who said they decreased, giving a balance of -14%, disappointing expectations of growth (+9%) in the previous survey.