WIREDGOV

SME manufacturers reported strong growth in domestic and export orders in the three months to April.

The UK’s small and medium-sized (SME) manufacturers reported strong growth in domestic and export orders in the three months to April, but rising costs and prices continue to bite, according to the latest quarterly SME Trends Survey.

The survey of 373 manufacturers found that total new orders growth was at a three year high, driven by solid rises in both domestic and export orders, with the latter growing at the fastest pace since mid-2011. Output growth was also at its highest for six years, and orders and output are expected to strengthen yet further in the coming quarter.

As a result, sentiment among SMEs is upbeat. Optimism about the business situation rose at its fastest pace in almost three years, with export optimism climbing at a record rate.

However, the weak pound is continuing to stoke inflationary pressure, with SME manufacturers reporting the strongest rises in unit costs and prices in six years.

Furthermore, investment plans for the year ahead deteriorated, particularly those for buildings and plant & machinery, after improving over the previous two quarters. However, investment intentions remain a little above their long-run averages.

This survey was conducted prior to the announcement of a General Election.

Alpesh Paleja, CBI Principal Economist, said:

“The UK’s SME manufacturers have hit a purple patch, with strong domestic and export demand driving a firm rise in output.

“But costs and prices have continued to climb, with little sign of let up over the next quarter. This is putting considerable pressure on manufacturers’ margins, and so we’re likely to see further pass-through to consumer prices ahead.”

Key findings:

• Domestic orders rose at their fastest pace (+19%) since October 2013 (+20%). Export orders growth accelerated (+20%) the highest since April 2011 (+23%)
• 38% of businesses reported an increase in total orders, and 18% a decrease, giving a balance of +20%, the highest since April 2014 (+20%)
• 31% of firms said the volume of output over the past three months was up and 13% said it was down, giving a balance of +18%, the highest since April 2011 (+18%)
• 34% of manufacturers said employee numbers were up, and 11% said they were down, giving a balance of +23%, the highest since July 2014 (+24%)
• 31% of firms said they were more optimistic about the general business situation than three months ago and 15% were less optimistic, giving a balance of +17%.  Optimism about export prospects for the year ahead rose at a record pace (+32%)
• Average domestic prices (+26%), average export prices (+28%) and average unit costs (+38%) all rose at the fastest rates for 6 years
• Manufacturers intend to spend less on buildings (-15%) and plant & machinery (-10%) over the next 12 months than they did over the previous twelve months.

Key findings – looking ahead:

• Total new orders (+26%), domestic orders (+19%), export orders (+27%) and output growth (+23%) are expected to continue to grow strongly over the next quarter
• Average domestic prices (+27%), export prices (+28%) and unit costs (+32%) are all expected to rise quickly again over the next quarter.