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News - 14 February 2004

CBI Survey shows a rise in confidence among small manufacturers

Smaller manufacturers have begun to benefit from the economic recovery. Confidence is rising for the first time in almost two years and the three-year decline in orders and output is coming to an end.

The latest CBI quarterly survey of small and medium-size firms, published On 9 February also shows the economic turnaround has not lifted the fortunes of smaller firms as much as larger ones.

Smaller manufacturers reported flat total orders over the past three months, halting the persistent decline in orders that began in April 2001. Thirty per cent of firms saw orders rise last quarter and 29 per cent saw them fall. The balance of plus one per cent compares with minus 25 per cent in October 2003. A balance of plus eight per cent of firms now predict orders will rise, the most positive expectation for almost two years. Small companies were less positive about orders than medium-size ones.

The seven-year decline in export orders has also come to an end. The recorded balance of plus two per cent marks the first positive result since July 1996. Export confidence rose for the first time in eighteen months and smaller firms have not been as optimistic about orders since July 1996.

Output was flat over the past three months, with a balance of minus one per cent comparing with minus 21 per cent in the last survey. This ends the decline in output that began almost three years ago. A balance of plus 12 per cent of firms now predict output will rise, the most positive expectation since April 2002.

Overall optimism increased for the first time since April 2002. A recorded balance of plus ten per cent compares with minus 13 per cent in the last survey.

Job cutting continued over the past quarter but the rate of decline has eased to the lowest level for over five years.

Hugh Morgan Williams, Chair of the CBI's SME Council, said, "Smaller manufacturers will be greatly encouraged by these findings. The three-year slide in orders and output has finally halted and firms will now be hoping the worst is behind them. Confidence has been boosted and over the coming quarter smaller firms expect positive growth, but we should remember that few have seen it yet. Jobs are still being lost and the broader economic recovery must endure for smaller firms to truly enter positive territory."

Companies do not plan to increase investment in buildings and plant and machinery but spending plans on innovation and training are the most positive for over eighteen months.

Costs rose last quarter while prices declined (albeit at the slowest rate since April 2002) maintaining the pressure on profit margins.

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