SME manufacturing output stabilised in the three months to January, but the expectation is for a decline in the coming quarter for the first time since April 2020, according to the CBI’s quarterly SME Trends survey.
The survey of 267 SME manufacturing firms was in field from 16 December to 13 January – covering the conclusion of the Brexit negotiations and the return to lockdowns in England and Scotland. Consequently, SME manufacturers saw optimism deteriorate, with export sentiment also falling, although at a slower pace than in previous quarters.
Meanwhile, the volume of total new orders fell, driven by a decline in domestic orders, while export orders grew at the fastest pace in two years. Average costs grew at the fastest pace since April 2019, with domestic prices also growing. The decline in employment continued to slow in the three months to January.
Next quarter, output is set to fall alongside total new orders, with declines in both domestic and export orders. Cost growth is set to accelerate further next quarter, leading to a pick-up in domestic price growth. Headcount is tipped to stabilise in the coming quarter. Meanwhile, the proportion of manufacturers citing materials or components as a factor likely to limit output over the next three months rose to the highest on record.
Furthermore, investment intentions for the year ahead remain weak, with SME manufacturers set to cut back capital expenditure on buildings and plant and machinery.
Charlotte Dendy, CBI Principal Economist, said:
“Output has stabilised for SME manufacturers over the past quarter, however tighter lockdown restrictions are likely to stunt activity in early 2021. With output and new orders set to fall next quarter, alongside increased costs and material shortages, the outlook remains challenging.
“Vaccine progress is encouraging, but with restrictions likely to be in place for a while yet, it is vital that business support moves in lockstep.
“Businesses are craving clarity on what lies ahead and want to see action before the Budget.
“Avoiding a cliff-edge end to support in April is essential. Extending the Job Retention Scheme and repayment periods for VAT deferrals until the end of June would offer much-needed breathing space and protect companies and livelihoods.”