Small manufacturers expect increase in export order

A net 4% of small and medium-sized (SME) manufacturers are more optimistic about their business situation, according to a survey by the CBI.

The business group reported on Tuesday that optimism has edged higher over the past quarter, and sentiment regarding export prospects for the year ahead has risen strongly.

The survey of 423 firms revealed that total new orders edged up slightly in the three months to October, while output rose modestly.

Analysts have been paying close attention to export orders, after the value of the pound plummeted following the referendum decision to leave the European Union.

The CBI found that export orders for SME manufacturers were flat on the quarter, but this marked the first time that they had not fallen since mid-2014. Firms anticipate robust growth in export orders over the next three months, with expected growth the strongest since the data series began (in October 1988).

However, sterling’s sharp depreciation has also raised manufacturers’ costs.

While optimism about export prospects over the year ahead grew strongly (at the fastest pace since April 2014), SME manufacturers reported that their average unit costs are rising (at the fastest pace since April 2013) and are expected to continue to increase over the next three months.

Elsewhere, the survey showed that employment numbers in the SME manufacturing sector have grown for the 14th consecutive quarter, but at the slowest pace in almost two years. Over the next three months, the headcount is expected to be flat.

The CBI also found that investment intentions among SME manufacturers have improved, following a deterioration in the wake of the referendum.

Rain Newton-Smith, chief economist at the CBI, commented:

“Smaller manufacturers are increasingly confident about their export prospects in the months ahead as they continue to reap benefits from the weaker Pound. But this is also leading to a rise in costs at home.

“While investment intentions have improved, uncertainty among businesses remains high, and so the Government must prioritise measures to ensure that firms keep investing ahead, like removing new plant and machinery spending from business rate calculations.

“Setting the right environment for firms to innovate must be at the heart of the Autumn Statement, so the Government should commit to a long-term target for R&D spending of 3% of GDP, getting behind Innovate UK and our catapult centres.”