SMEs gain confidence as orders decline ends, says CBI

Smaller manufacturers have begun to benefit from the economic recovery, with confidence rising for the first time in almost two years and the three-year decline in orders and output coming to an end, the Confederation of British Industry (CBI) has said.

According to the latest CBI quarterly survey of small and medium-size firms, 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% saw them fall – the balance of plus 1% compares with minus 25% in October 2003.

A balance of plus 8% 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 CBI said. The recorded balance of plus 2% 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 1% comparing with minus 21% in the last survey. This ends the decline in output that began almost three years ago. A balance of plus 12% 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 10% compares with minus 13% in the last survey.

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."

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

(gmcg)