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Small manufacturing businesses have continued to experience a decline in orders and output since October, but not as steeply as in the immediate aftermath of last September’s terrorist attacks in America.

Business confidence, too, is still sliding, according to the latest SME Survey from the Confederation of British Industry (CBI). However, it is less marked than in the October survey.

The survey’s results suggest that the events of September 11th gave SMEs a “one-off negative shock”. However, it is the slowdown in global demand, in evidence before this date, which “continues to affect prospects,” says the CBI.

39% of SMEs said that their total number of new orders were down this quarter, whilst 24% said they were up. The minus 15% difference is higher than the minus 25% difference recorded in October.

This actual figure is also higher than the minus 23% forecast for this quarter. Small businesses said they had experienced a sharper drop in total new orders than medium-sized companies.

Looking ahead, an expected balance of minus 9% over the next four months suggests that, overall, SMEs think the rate of orders and output will continue to decline, but at a more moderate pace. Once again, small businesses are more negative than medium-sized firms.

In contrast, the drop in export orders exceeded already pessimistic expectations, says the CBI. SMEs expect a further, although less severe, decline over the next quarter. Small firms are, however, more optimistic than medium-sized companies.

Simon Bartley, chair of the CBI’s SME Council, said that “Firms are a little less gloomy about their export prospects but some sign of a pick-up in global demand is desperately needed.”

Adrian Freakes, managing director of electronics contract manufacturer Surtech Interconnection, concurred, saying it is a “pretty tough market…it’s all going offshore.”

Although Surtech mostly caters for a home market, Mr Freakes commented that he would be surprised if export orders don’t decline in the industry in general.

The survey illustrated that prices remain the most important factor limiting exports but showed that finding skilled labour was less of a problem with unemployment steadily rising.

SME lay-offs have continued, at a faster rate than expected, over the past four months. However, fewer jobs are expected to be shed over the next quarter, says the CBI, in contrast with the manufacturing industry as a whole, where job cuts are predicted to remain rife.

Despite these job cuts, average unit costs have increased marginally. This, combined with a continued reduction in prices, has led to a squeeze on SME’s profit margins. This is expected to continue in the coming months and could see SMEs cut back investment plans.

Mr Freakes added, “There is great pressure on pricing. However, there are some green shoots, some opportunities, if you look for them.”

For further information, visit www.cbi.org.uk .

With thanks to Lloyds TSB Success4Business. For more news and information visit www.success4business.com.

(11/2/02)

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