Output has fallen among the UK’s small and medium-sized manufacturers with sentiment deteriorating, says the Confederation of British Industry.

Output has fallen among the UK’s small and medium-sized manufacturers with sentiment deteriorating, says the Confederation of British Industry (CBI).

In the lobbying group’s latest quarterly SME Trends Survey of 359 manufacturers, 23 per cent report output volumes had increased in the three months to July, with 28 per cent saying they had fallen. The resulting balance of -5 per cent is the first fall since October 2009.

Export orders fell slightly in the quarter to July (-4 per cent), while domestic orders were flat (+2 per cent). Both export and domestic orders are expected to fall over the coming three months (balances of -12 per cent and -5 per cent respectively).

Alongside the deterioration in activity, optimism about the general business situation fell back (-13 per cent), following a sharp improvement in the previous quarter.

Furthermore, investment intentions for the next 12 months also softened. Respondents plan to lower capital expenditure in the year ahead compared with the past 12 months, with investment intentions for plant and machinery (-13 per cent) at their weakest in three years (-19 per cent in July 2009), although only slightly below their long-run average (-9 per cent).

Lucy Armstrong, chair of the CBI’s SME Council says, ‘Challenging domestic conditions, continuing uncertainty over the Eurozone, and a broader loss of momentum in global growth, are clearly taking their toll on the UK’s smaller manufacturers.

‘Nonetheless, smaller manufacturers have stuck by their plans to take on more staff – an increase in numbers employed is perhaps one of the few bright spots in an otherwise muted picture.’

Despite falling output and orders, the businesses surveyed increased headcount in the quarter to July (a balance of +11 per cent), broadly in line with expectations (+16 per cent).

Elsewhere, average unit cost inflation (+8 per cent) eased significantly, and is now at its lowest since October 2009 (+3 per cent). Manufacturers reduced domestic output prices slightly (-4 per cent), while export prices were held steady (-1 per cent) for the third consecutive quarter. Costs are expected to be flat in the coming three months, while output prices are expected to fall.

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