Business optimism
amongst SME manufacturing firms deteriorated in the three months to October, at
the fastest pace since July 2016, according to the latest quarterly CBI SME
Trends Survey.
The survey of 240
small and medium-sized manufacturers also found optimism regarding export
prospects for the year ahead remained gloomy.
Falling sentiment
came against the backdrop of continued malaise in activity. Total new orders
fell slightly in the three months to October (-6%), at a similar pace to July
(-4%). The decline in new orders was driven by ongoing falls in both domestic
orders (-12%) and export orders (-6%). Furthermore, output remained flat in the
three months to October (0), and is expected to fall next quarter (-9%).
The most prominent
factors cited as likely to limit export orders in the near-term were
political/economic conditions abroad (64%) and quota/import licence
restrictions (26%), both hitting survey record highs (since Oct 1988).
Meanwhile, headcount
declined (-5%) for the first time since January 2013, and is expected to fall
at a similar pace in the next quarter.
With sentiment
falling and uncertainty high, investment intentions remained poor across the
board. In particular, plans for spending on plant & machinery (-20%) and
training & re-training (-25%) were at their weakest since the financial
crisis.
Alpesh Paleja, CBI
Lead Economist, said: “Activity among SME manufacturers remains listless. Firms
are caught between the perfect storm of perennial Brexit uncertainty at home,
and sluggish growth in the global economy. As well as hitting output, orders and
hiring, these issues are depressing investment plans across the board.
“As a first step to
lifting the malaise, the next government must get behind business to deliver on
a Brexit deal, particularly one that unlocks a smooth transition period. Then
the real heavy lifting can begin on forging a future relationship with our biggest
trading partner. Ending political uncertainty will enable a renewed focus on
domestic priorities, which is critical for the economy’s longer-term growth.”
Key findings – three
months to October:
- Business sentiment
deteriorated in the three months to October (-32%), at the fastest pace
since July 2016. Meanwhile, optimism regarding export prospects for the
year ahead remained gloomy (-31% in October, from -31% in July).
- Numbers employed in SMEs are
expected to fall slightly over the next three months (-6), a similar
decline to that seen over the past quarter (-5).
- New orders fell slightly over
the past three months (-6%), reflecting ongoing declines in both domestic
(-12%) and export orders (-6%).
- Investment intentions
remained weak, with spending plans on training & retraining (-25%),
product & process innovation (-5%), buildings (-25%) and plant &
machinery (-20%) all below their long-run averages.
- Despite the slight decline in
headcount, concerns over labour shortages remained high. 27% of SME
manufacturers cited skill shortages as likely to limit output in the next
three months, well above the long-run average (+15%). One in five SME
respondents (20%) cited materials or components an issue.
- Raw materials stocks
continued to rise (+19%), though growth remained below the high seen in
April (+33%). Stocks of finished goods rose slightly (+6%), while
inventories of work in progress remained flat (-3%).
- Almost two-thirds of
respondents (64%) cited political/economic conditions abroad as likely to
limit export orders – a survey record high. Just over a quarter
(26%) were concerned about quotas and import licences, also a survey high.
Citations of quotas/import licences as a restricting factor were
particularly high among medium-sized manufacturers (57%, up from 6% in
July).
