Sentiment among SME manufacturers was stable for a second successive quarter in July, though this represents a relative improvement compared with the sharp declines seen 2022 and in early 2023, according to the CBI’s latest SME Trends survey.
Output declined for a fourth successive quarter in the three months to July. Total new orders also fell moderately, though the volume of total orders books was stable at a level deemed “below normal.” Both output and new orders are expected to grow moderately in the three months to October.
Supply-side constraints to output continue to diminish, though the share of firms citing labour shortages as a limit on output over the next three months remained historically high, as did the share citing the availability of materials or components. A rising share of SMEs (almost two-thirds) cited orders or sales as a constraint on output.
SMEs have scaled back investment plans. Capital expenditure on buildings and on plant & machinery is expected to fall in the year ahead, with rising shares citing the availability of internal finance and the cost of finance as factors likely to limit capex. Spending on product and process innovation is also expected to decline, while training expenditure will be held steady.
Ben Jones, CBI lead economist, said: “Sentiment among SME manufacturers remains subdued, with output and new orders falling over the last quarter. Worryingly, investment intentions for the year ahead have weakened across the board in the face of uncertain demand, persistent labour shortages and, increasingly, higher finance costs as interest rates rise.
“In a challenging environment for manufacturing investment, confidence-building measures have a big role to play, whether that’s scaling up Made Smarter into a national programme or providing clearer signals of intent over the UK’s response to the US Inflation Reduction Act and the EU’s Green Industrial Plan.”
