Growth in demand

Manufacturing output and total orders among smaller firms have risen at their fastest rate in over a decade, according to CBI research published this week.

The latest quarterly SME Trends Survey also shows the net balance of small firms increasing prices at a level not seen for about two years, as small and medium-sized enterprises (SMEs) are able to pass on some of the continued cost increases.

Much of the surprise growth in orders and output was driven by overseas demand among medium-sized manufacturers. But, although the quarter to January 2007 was particularly strong, businesses in the sector expect demand to slow down during the next three months.

Accordingly, business sentiment remains flat and significant job losses are expected over the coming quarter, particularly in medium-sized firms. Investment plans for buildings have been scaled back, but there has been a pickup in the expected spend on training and innovation.

Steve Sharratt, Chairman of the CBI's SME Council, said: ‘Smaller businesses have recovered from a dip in October to deliver a very strong quarter. The growth in demand has also cut more manufacturers the slack they need to raise prices, restricting the impact on profit margins of the continued increases in costs.