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SMEs the most optimistic since April 2007

Date Added: Mon November 2 2009
Demand for goods made by the UK’s small and medium-sized manufacturers remained depressed in the last three months, but firms expect order books to stabilise in the next quarter. Moreover, they are the most optimistic about the business situation in two and a half years, according to the CBI’s latest quarterly SME Trends Survey.

Of the 424 firms surveyed, 40% saw the volume of total new orders decline in the three months to October, while 24% reported a rise. The resulting rounded balance of -17% is an improvement on the previous quarter’s balance of -34%. In the coming three months, firms expect total orders to stabilise (a balance of -1%).

As a result, the balance of firms feeling more optimistic about the general business situation (+9%) is the highest since April 2007.
The volume of manufacturing output declined further during the last quarter with 35% of firms reporting a fall, and 22% a rise, giving a rounded balance of -14%. This compared with a balance of -28% in the previous quarter. Output expectations for the next three months remain negative (-7%).

Russel Griggs, Chairman of the CBI’s SME Council, said: "It is good to see that both small and medium-sized firms feel more positive about business prospects than they have for two and a half years, and hope that orders will stabilise in the coming three months However, current conditions remain challenging for many small and medium-sized UK manufacturers, with orders and output still falling, and uncertainty about demand a major concern.
It is disappointing that the export bounce, which medium-sized firms had hoped to see, failed to materialise. Accessing finance remains a particular problem for this size of business, with a record proportion saying it is affecting their ability to invest."

Volumes of domestic orders fell in the past three months, though the balance of -19% is less negative than it has been for a year-and-a-half.
Export orders continued to fall (a balance of -13%), despite an expectation among medium-sized firms that they would rise (+27%) and the relative weakness in Sterling. In the coming three months, firms are hoping that overseas orders will stabilise (+2%). Moreover, SMEs continue to feel more optimistic about prospects for exports in the year ahead, with a balance of +10% an increase on last quarter’s two-and-a-half year high of +5%.

Numbers employed in SME manufacturers continued to fall in the last three months, and while 15% took on more staff, 30% reduced their headcount, giving a rounded balance of -16%. This was in line with expectations, and a slower rate of decline than the previous three quarters.
The inability of firms to raise finance continues to grow, with the proportion of medium-sized firms saying it is likely to limit their investment plans at a record high (30%). Access to credit and finance is continuing to constrain some firms’ export and output plans.