Small and medium-sized manufacturers are starting to benefit from the relative weakness of Sterling, with overseas orders stabilising after seven quarters of decline, according to the CBI. Manufacturing production also steadied, but is expected to fall in the next quarter as overall demand remains weak.
Of the 418 firms surveyed for the CBI’s quarterly SME Trends Survey, 27% said the volume of export orders rose in the three months to January, while 25% said it fell. The resulting balance of +2% is the strongest figure since January 2008 (+12%).
Export orders are expected to grow more strongly in the next quarter (a balance of +8%), and firms are the most optimistic about export prospects for the year ahead since October 1995 (+15%).
Domestic orders continued to decline, but at the slowest rate since April 2008 (-10%). 23% of firms reported a rise in orders during the past three months, and 33% a fall, giving a balance of -10%. Firms expect domestic orders to fall again in the next quarter (-7%). The volume of total new orders fell in the past three months (-5%), but at a slower rate than the previous quarter (-17%).
Manufacturing production stabilised in the quarter, thanks in part to the modest improvement in exports. 27% of SMEs said output rose and 26% said it fell. The resulting balance of +1%, was above expectations, and the highest since April 2008 (+2%). But output is predicted to weaken in the coming months (a balance of -6%), as total new orders are expected to fall further (-4%).
Russel Griggs, Chairman of the CBI’s SME Council, said:
“Smaller manufacturers have been pinning their hopes on the relative weakness of Sterling to boost overseas orders and offset weak demand at home. It is therefore encouraging that exports are now stabilising.
“Small and medium-sized manufacturers are also expecting overseas orders to grow in the coming months, and are the most upbeat about export prospects for fifteen years.
“However, with the economy only just edging out of recession, conditions will still feel pretty challenging for smaller firms. Domestic orders are likely to remain depressed, and firms are expecting output to fall in the next three months.”
Optimism about general business prospects was broadly unchanged (+2%), compared to +9% in the previous quarter.
Close to 10% of small and medium-sized manufacturers are reporting that credit or finance constraints are likely to limit output or export orders in the next quarter.
Smaller manufacturers are continuing to reduce their headcount (a balance of -8%), albeit at a slightly weaker rate than the previous quarter (-12%).
Firms are continuing to de-stock, but at a slower rate, and 66% of firms are working below capacity.
1. A balance is the difference between the percentage of manufacturers reporting an increase and those reporting a decrease.
2. The January 2010 CBI SME Trends Survey was conducted between 10th December 2010 and 6th January 2010. The total response was 418 manufacturing firms with fewer than 500 employees, of which 355 employed under 200 staff.
3. During the survey period the pound averaged euro 1.12 and $1.61, while Brent Crude averaged $75.52 per barrel, compared with euro 1.09, $1.60 and $67.16 per barrel in the October survey period.
4. The CBI is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce.