Optimism rises at record pace among UK’s smaller manufacturers

Optimism about the business situation rose at the fastest pace since records began in 1988 among small and medium-sized manufacturers, on the back of improving demand and output, according to the CBI’s latest SME Trends Survey.

Total new orders increased in the three months to October for the first time since July 2012, driven by domestic orders which rose at their fastest rate since January 1995.

Export orders rose at their fastest rate since April 2011, while optimism around export prospects for the next twelve months increased strongly.

Alongside the improvement in demand, output rose modestly and is expected to pick up at a faster pace over the next three months, accompanied by a further improvement in orders.

Greater optimism and activity among SMEs has led to a step change in investment plans for the year ahead, with forecasts for spending on buildings, plant and machinery, product innovation and training all in positive territory.

Stephen Gifford, CBI director of economics, said:

“This has been a positive quarter for small and medium-sized manufacturers, with new orders and output both on the rise, and further improvements expected next quarter.

“Optimism about the general business situation has improved and is now at a record high, and there is evidence of a general thaw in investment intentions for the year ahead.”

Key findings – three months to October:

·         42 per cent of firms reported an increase in total new orders and 25 per cent said they decreased, giving a balance of +17 per cent, ahead of expectations of modest growth (+ninbe per cent) in the previous survey

·         42 per cent of firms reported an increase in domestic orders and 22 per cent said they decreased, giving a balance of +20 per cent – the highest since January 1995

·         33 per cent of firms reported an increase in export orders and 19 per cent said they decreased, giving a balance of +14 per cent – the highest since April 2011

·         Output increased modestly (+eight per cent), beating predictions of staying unchanged in the previous survey (+one per cent). The latest balance was the highest since July 2011

·         Output is predicted to increase further in the next three months (+15 per cent).

·         Manufacturers expect demand to strengthen again in the next three months, with robust growth in total new orders (+26 per cent) and domestic orders (+23 per cent).

·         Sentiment about the general business situation rose for the second consecutive quarter, at a record pace (+35 per cent), while optimism about export prospects rose for the third consecutive quarter, at its fastest since July 1995 (+23 per cent)

·         Numbers employed grew moderately (+seven per cent) and headcount is expected to increase in the coming quarter (+14 per cent)

·         Average domestic and export prices were broadly flat (-one per cent and -three per cent respectively)

·         Average unit cost inflation (+eight per cent) was broadly in line with the previous quarter (+ten per cent)

·         Manufacturers’ investment intentions are up on the previous quarter, with plans to spend more on buildings (+five per cent), plant and machinery (+11 per cent), product and process innovation (+21 per cent) and training (+21 per cent) relative to the past twelve months. In particular, plans for spending on buildings turned positive for the first time in the survey’s history (since October 1988).

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