Ray of hope but firms see orders and output fall again

This decrease in total new orders during the quarter was driven by falls in both domestic and export demand, disappointing firms’ expectations that it would pick up.

The CBI’s latest SME Trends survey said that 23 per cent of firms reported an increase in total orders and 37 per cent said they decreased, giving a balance of minus 14 per cent.

Stephen Gifford, CBI director of economics, said: “It’s been another disappointing quarter for small and medium-sized manufacturing firms, who have seen new orders and output continue to fall.

“Nonetheless, firms do expect to raise output a little in the coming three months. The recent weakening in sterling will have boosted the competitiveness of the UK’s smaller manufacturing firms, with a strong pick-up in export orders predicted.

“But conditions will remain challenging for the sector. Fears about the impact of political and economic conditions abroad on export demand have risen and there is little sign in this survey that credit conditions are improving.”

Output also fell for the fourth consecutive quarter. However, manufacturers expect output to grow slightly over the next three months, on the back of strong predicted growth in export orders, while domestic orders look set to stabilise. Despite weaker than expected activity, optimism about the overall business situation has steadied, following three quarters of decline. Meanwhile, optimism about export prospects rose for the first time in a year.

Employment in the sector ticked up in the three months to April, and manufacturers expect a modest increase in headcount in the coming quarter.

Elsewhere, both domestic and export price inflation were broadly the same quarter-on-quarter, but growth in average unit costs was the fastest since October 2011, squeezing manufacturers’ profit margins once again.