3 minute read
SME optimism rebounds with output & orders set to grow
Optimism among small and medium-sized manufacturers rebounded sharply in the three months to January, according to the latest quarterly CBI SME Trends Survey.
The survey of 279 SME manufacturers reported that optimism about the general business situation in the manufacturing sector rose at the strongest pace since April 2014 in the quarter to January. The upward swing in growth from the previous quarter was the largest improvement in optimism in a single quarter in the survey’s history, since October 1988. Optimism about export prospects also rose for the first time since July 2018.
Output volumes and domestic orders did fall in the three months to January and export orders were flat, but the latest survey does show that output and domestic orders are expected to grow in the quarter ahead.
Chiming with the weak activity this quarter, numbers employed fell (at a similar pace to the previous three months) and are expected to remain flat in the next quarter.
Investment intentions for the year ahead improved across the board. Spending plans for buildings, plant & machinery and product & process innovation all rose above their long-run averages, though point to only flat or slightly higher capital spending in the next twelve months. Furthermore, SME manufacturers still expect to cut back on investment in training & retraining, where investment plans remain below historic norms.
Labour shortages rose further as a cited constraint on capital spending, reaching another survey high.
Alpesh Paleja, CBI lead economist, said: “It’s brilliant the UK’s small and medium-sized manufacturers are feeling markedly more optimistic about the business outlook, with the outlook for activity and investment looking more hopeful too.
“But scratch the surface, and it seems that SME manufacturers are still struggling. This continues the theme seen across the recent swathe of economic data: sentiment and expectations clearly improving, but little sign of it feeding through to activity.
“Furthermore, businesses are still grappling with longer-term uncertainty around the end state of Brexit. It’s vital the Government works quickly to secure a good trade deal with the European Union: one that shores up British manufacturers, protects jobs and allows industry to grow.”
Key findings of the latest SME Trends Survey:
• 45% of SME manufacturers said they were more optimistic regarding their business situation, while 14% said they were less optimistic, giving a rounded balance of +32% (up from -32% in October 2019 – the biggest swing since the survey’s inception in October 1988). This is the strongest balance since April 2014 (+36%). Optimism about export prospects for the year ahead also rose (+7%), for the first time since July 2018 (+8%).
• 22% of firms said output increased and 29% said it decreased, giving a rounded balance of -7%. Growth is expected to rally next quarter (+18%).
• 30% of firms reported an increase in total new orders, and 38% said they decreased, giving a rounded balance of -7%. New orders are expected to rise (+18%) over the coming quarter.
• 28% of firms said domestic orders increased and 35% said they decreased, giving a balance of -7% (from -12% in October 2019). Domestic orders are expected to grow (+14%) over the next three months.
• 23% of firms reported an increase in export orders and 23% said they fell, giving a rounded balance of -1%. Firms anticipate export orders will remain broadly flat (+1%) next quarter.
• Numbers employed continued to fall, with 13% of firms saying they had seen growth in headcount and 20% saying they had seen a reduction, giving a rounded balance of -8% (from -5% in the three months to October).
• SME manufacturers’ investment plans for buildings (-3%), plant & machinery (+1%) and product and process innovation (+6%) all rose above their long-run averages (-17%, -7% and +8% respectively).
• Average domestic prices were flat (+1%) and export prices fell (-11%), but both are expected to rise in the next quarter (+11% and +18% respectively).