Growth among smaller and medium-sized (SME) manufacturers remained positive in the three months to July, but exports dragged down overall performance, according the latest CBI SME Trends Survey.
The survey of 408 companies reported steady growth in new domestic orders over the quarter and a rise in output in line with expectations. Business optimism also improved a little further in the three months to July.
But new export orders fell, having been broadly flat for the previous two quarters. Export prices continued their downward trend, falling at the fastest pace since October 2003, and are widely expected to limit export orders in the next quarter.
Looking ahead, growth in output and total and domestic orders is expected to gather pace, whereas exports look set to fall again in the three months to October.
Average unit costs fell a little for the first time since 1999, with domestic prices staying broadly flat. More jobs were added in the three months to July, and employment growth is projected to continue through to October.
Anna Leach, CBI Head of Economic Analysis, said: "Optimism among smaller manufacturers improved this quarter, alongside steady employment growth, rising output and new domestic orders.
"But the relative strength of the Pound against the Euro is hitting export orders and margins, while uncertainty regarding Greece threatens growth prospects in the Eurozone."
Key findings – three months to July
- 32% of small & medium sized enterprise (SME) manufacturers said they were more optimistic, while 18% said they were less optimistic, giving a balance of +14%, up from +4% last quarter
- 30% said their volume of output was up, and 18% said it was down, giving a balance of +12%. Companies expect output growth to pick-up somewhat in the next quarter (+17%).
- 30% said their domestic orders were up, while 22% said they were down, giving a balance of +8%, with the expectation of slightly stronger orders growth next quarter (+15%).
- 18% said export orders rose over the past three months, 26% said they fell, leaving a balance of -8%,. Firms anticipate export orders to fall at a broadly similar pace in the next quarter (-6%).
- Firms' optimism about their exports prospects for the year ahead remained negative (-5%) for the second consecutive quarter. Export prices fell again (-19%) and at the fastest pace since October 2003 (when the balance was -20%).
- Prices remains the main factor likely to limit export orders, cited by 49% of firms.
- 30% of small manufacturers are employing more people than three months ago, and 12% less. The resulting balance of +17% is the same as the three months to April.
- The balance for employment expectations over the next three months is also +17%
- Firms are planning to keep spending on plant and machinery broadly unchanged (-1%) and to reduce buildings spend (-8%) over the next twelve months. However, investment intentions are above their long-run averages (-7% and -17% respectively). Growth in spending on training (+16%) and innovation (+11%) were broadly in line with their long run averages.
- Average unit costs fell slightly at the fastest pace since April 1999 (when the balance was -13%) to -5% and domestic prices (-2%) were broadly flat over the three months to July.