Sentiment among SME manufacturers worsens amid Brexit uncertainty

New orders growth remained subdued among SME manufacturers in the three months to January, with sentiment worsening further. This is according to the latest quarterly CBI SME Trends Survey.

The survey of 296 SME manufacturers reported that output grew at a pace above the long-run average in the three months to January, at a similar rate to the three months to October. But manufacturers expect only a slight rise in output over the coming quarter, and total orders are set to be flat.

Domestic orders rose only slightly in the three months to January, following flat volumes in the previous quarter, and they are expected to stagnate again in the next three months. Exports orders growth saw a more notable acceleration in the quarter to January, after a noticeable slowdown in the previous quarter, though remained below the highs seen in mid-2018.

Meanwhile, business optimism dropped for the second quarter in a row in January, with export sentiment falling at the fastest pace since the financial crisis. Additionally, manufacturers’ concerns that political and economic conditions abroad were likely to limit their future ability to obtain export orders rose to their highest level on record (since 1988).

Investment intentions for the coming year remained weak, with expenditure on buildings, plant & machinery, training, and innovation all expected to be lower in the year ahead.

Overall, capacity remains tight for manufacturers, with the proportion of firms working below capacity remaining below the long-run average. Concerns over restrictions to near-term output from the ability to source materials/components rose to a record high and worries over availability of skilled labour limiting investment in the year ahead remain elevated.

Alpesh Paleja, CBI principal economist, said: “Uncertainty in the domestic and global trading environment is clearly hitting manufacturing SMEs hard, with sentiment falling, concerns over political and economic conditions abroad spiking and investment plans still well down on the past year.

“To give the UK’s SME manufacturers some much-needed certainty, it is crucial that politicians now work together to break the Brexit deadlock. Firms will welcome that the majority of MPs oppose a no deal outcome, but rejecting no deal doesn’t provide certainty. A deal is vital for the future health of SME manufacturers, giving them the confidence to invest, grow and compete on the global stage.”

CBI www.cbi.org.uk