Slowing decline

The CBI’s latest quarterly SME Trends Survey indicates that the rate of decline in orders and output among the UK’s SMEs is slowing.

Medium-sized companies are predicting a return to growth in the next quarter, thanks to an improvement in export orders.

Of the 480 SMEs surveyed, 51 per cent saw the volume of total new orders fall in the three months to July, while 17 per cent reported a rise. The resulting balance of -34 per cent is an improvement on the previous quarter’s balance of -51 per cent, which according to the CBI was the worst figure since the survey began in 1988.

The volume of manufacturing output continued to fall with 43 per cent of firms saying it declined, and 15 per cent saying it rose, giving a balance of -28 per cent. This marked a slower rate of decline than the previous quarter’s survey low of -48 per cent.

Looking ahead to the next quarter, expectations for volumes of total new orders and output remain negative for small and medium-sized firms as a whole, but medium-sized companies are predicting an export-led bounce in orders and output.

Optimism about the business situation among small and medium-sized manufacturers is falling at a slower rate, compared with a balance of -42 per cent in the previous quarter.

Russel Griggs, chairman of the CBI’s SME Council, said: ‘Business conditions remain difficult for the UK’s small and medium-sized manufacturers. Orders and output are still falling, but things aren’t quite as gloomy as they were three months ago.

‘So far, the relative weakness of Sterling has not provided firms with much of an export boost. It is therefore encouraging that medium-sized companies are hopeful overseas orders will pick up in the next quarter, helping raise total orders and output.

'Medium-sized firms are also benefiting from improved access to credit, unlike smaller companies, which tend to have fewer funding options available to them.

‘The outlook for medium-sized firms looks positive, but it is still too early to say whether export-led growth will deliver a platform for sustained recovery. It is unclear when a return to growth for smaller firms will come and it is worrying that credit constraints remain a concern. However, we hope these will loosen over the coming months as the flow of finance to SMEs increases.’

Volumes of domestic orders remained weak in the previous three months (a balance of -38 per cent), and are expected to shrink again in the next quarter.

Despite cost cutting and the relative weakness of the pound, volumes of export orders shrank by more than expected in the three months to July and are expected to decline again in the next three months, but at a much slower rate.

However, firms are the most optimistic about export prospects since April 2007, and medium-sized companies expect the volume of export orders to rise in the next quarter, pushing the volume of total orders for medium-sized firms into positive territory.