Output, orders and employment fall

Smaller manufacturers (SMEs) faced tough trading conditions over the past quarter, with output, orders and employment all falling.

The quarterly CBI survey, conducted between 23 March 2005 and 13 April 2005, shows 20 per cent of firms saw orders rise over the past three months but 39 per cent saw them fall. The balance of minus 19 per cent compares with a balance of plus three per cent in the previous survey.

Over the next three months, SMEs overall expect orders to remain broadly unchanged. However, this masks a contrast between small firms predicting a fall and medium-sized firms expecting a rise.

Numbers employed by SMEs fell over the past three months, with 17 per cent of firms taking on more staff and 25 per cent taking on fewer, a balance of minus nine per cent.

Small firms reported the sharpest falls in numbers employed since October 2003, and although medium-sized firms reported broadly unchanged numbers, they expect to reduce employment over the next three months.

Average unit costs for SMEs rose at the fastest rate for 10 years, adding to the pressure on firms. Investment in buildings and plant and machinery continues to be reined back, although spending on innovation, training and retraining is forecast to remain broadly flat over the year ahead.

Hugh Morgan Williams, Chair of the CBI's SME Council, commented: "Smaller manufacturers are facing extremely challenging trading conditions. Unit costs rising at their fastest for a decade means margins continue to be under serious pressure.

"Confidence is low with domestic and export orders falling. SMEs are employing fewer people and staff levels are expected to fall further over the next three months.

"These storm signals send a sharp message to both the government and the Bank of England Monetary Policy Committee that further deterioration is probable unless corrective action is taken.

"Smaller manufacturers are often amongst the first to feel changes in economic conditions and struggle the most to shoulder the regulatory burden. Further tax and regulatory burdens must therefore be avoided, with the government pushing ahead instead with the deregulatory agenda promised in the Budget.

"Meanwhile, the weak demand conditions highlighted by this survey strengthen the case against a further interest rate rise."