Falling away

Trading conditions for smaller manufacturers have continued to decline, with their output, employment and new orders all falling for the second successive quarter.

The deteriorating picture for small and medium-sized manufacturing in the three months to July is revealed in the CBI's latest quarterly SME Trends survey published today. It follows analysis from the CBI, released yesterday, that shows the Government is failing to hit its targets to help smaller firms grow.

The latest survey shows that 34 per cent of smaller manufacturers saw new orders fall, compared with only 22 per cent seeing an increase. The balance of minus 12 per cent comes on top of the minus 19 per cent reported in the previous quarter. There is little sign of improvement ahead, with a balance of minus ten per cent expecting a further decline next quarter.

The decline in new orders comes alongside a fall in output. Thirty-three per cent of smaller manufacturers said their output had declined over the past three months, whilst 27 per cent said it had risen, a balance of minus six per cent.

The number of staff employed by SMEs also fell, with 25 per cent reporting a drop in employment levels, against 17 per cent indicating a rise. Further job losses are also expected in the sector in coming months. Average unit costs continued to rise for SMEs, whilst their ability to raise prices remained under pressure.

Yesterday's CBI report examined the Government's progress in delivering its goal of making the UK the best place in the world to start and grow a small business by 2005. It found that four of seven targets set by the Small Business Service had been missed.

Doug Godden, Head of Economic Analysis at the CBI, said: "There is no let-up at present for small and medium-sized manufacturers, with lower output, orders and employment for the second quarter running. These firms also see little reason for optimism about the next three months.

"The current tough economic conditions only add to other difficulties faced by smaller firms - in getting to grips with new regulations from Government, raising capital to grow their business, and accessing vitally-needed advice services. The CBI's analysis shows that the Government has a long way to go before it delivers a climate that allows the small business sector to thrive."

The headline results from today's SME Trends survey mask some notable differences in the performance of small (up to 199 employees) and medium-sized (200-499) manufacturers, with small manufacturers faring particularly poorly in terms of output, orders and employment. Medium sized companies actually saw a moderate rise in new orders, with output remaining static whilst employment showed a slight fall.

Export orders fell again for small firms, a trend that has shown no let-up for nine years. By contrast, medium-sized companies reported orders from overseas rising at the fastest rate for eighteen months, with a further increase expected.