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The Broader Picture

There are signs of green shoots for SME manufacturers according to the latest CBI quarterly SME Trends Survey. Output growth among the UK’s SME manufacturers picked up in the three months to January, with a further acceleration expected next quarter.

The survey of 339 respondents also found that optimism improved at the fastest pace since April 2014 and export optimism improved at the fastest pace on record. Driving strong growth in output was the quickest rise in total new orders since April 1995, underpinned by a pick-up in both domestic and export orders growth.

Total orders growth is expected to pick up further over the next three months, with similar growth in domestic orders expected alongside a sharp acceleration in export orders. As a result, another firm rise in output is also predicted, with expectations for growth also the strongest on record.

Investment intentions also improved, with firms now expecting to increase spending on plant and machinery modestly – the first time that investment intentions have been positive in almost two years.

Numbers employed grew at a solid pace over the past quarter, and growth is expected to continue at a similar pace next quarter. However, concerns over skill shortages have ramped up, with the number of firms citing skilled labour as a factor likely to limit output rising to its highest since January 1989.

Alpesh Paleja, CBI principal economist, said: “Growth is going strong for SME manufacturers, who are reaping the benefits of a lower pound and buoyant global growth – as seen in record expectations for export orders growth. But margins are clearly still under pressure, with cost pressures high, and firms expect to raise prices further to regain some ground.

“Furthermore, concerns over skill shortages have rocketed, stoking capacity pressures further. This underlies the importance of establishing a future immigration system that provides companies with access to talent and labour. The building blocks of a new system that meets economic needs and public concerns must start with scrapping the net migration target, which has never been fit-for-purpose.”

 

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