SME MANUFACTURING ACTIVITY WEAKENS – CBI

New orders growth eased among small and medium-sized (SME) manufacturers in the three months to October, as domestic orders flat-lined, according to the latest quarterly CBI SME Trends Survey.

The survey of 331 SME manufacturers also reported that output growth eased, and production is expected to stall in the quarter ahead, with expectations among their weakest since October 2011.

Domestic orders growth ground to a halt, whilst export orders growth slowed to the weakest in nearly two years. The outlook for both is sombre, with domestic orders set to fall next quarter and export orders expected to be flat. The number of respondents citing political and economic conditions abroad as limiting near-term export orders rose further, remaining at its highest in two years.

Chiming with the softening in activity, growth in numbers employed eased over the last quarter, to its weakest in two years, and employment is expected to be broadly flat in the three months to January.

Meanwhile, business optimism deteriorated at the fastest pace since the wake of the EU Referendum, whilst sentiment over export prospects for the year ahead fell at one of the fastest rates since the depths of the Financial Crisis.

Over the next twelve months firms expect to cut back significantly on investment, with plans for capital spending on buildings at their weakest since July 2016. Investment on plant and machinery, training and innovation are also expected to be reduced over the year ahead.

Capacity pressures are also continuing to bite, with the proportion of firms working below capacity remaining low. A record number of SME manufacturers cited expanding capacity as a motivation for investment, and skill/labour shortages remain near their historic highs.

Alpesh Paleja, CBI Principal Economist, said:

“SME manufacturers are clearly feeling the pressure: both from softer global economic momentum, reflected in a tailing-off of exports orders, and Brexit uncertainty biting hard on investment plans.

“As a result, smaller manufacturers will have breathed a sigh of relief at the Chancellor’s package of investment incentives in the Budget, and support on business rates is also welcome.

“But the significant scaling back of planned capital spending is further proof that Brexit uncertainty is taking a real bite out of firms’ plans to grow and innovate. The Government’s number one priority has to be securing a Withdrawal Agreement with the European Union, so firms can enter the transition period and start to navigate the future with more certainty.”