Thursday, March 23, 2023

Sentiment amongst SME manufacturers remains weak as output falls and cost and price inflation remain high

Business confidence amongst the UK’s SME manufacturers remains weak, with sentiment having fallen for the fifth consecutive quarter in the three months to January.

The CBI’s latest SME Trends Survey paints a mixed picture for the quarter to January. Output contracted for a second successive quarter, but less quickly than in the previous quarter, and new orders stabilised following a steep drop in the three months to October. Both output and new orders are expected to be unchanged in the three months ahead.

Both cost and price growth eased slightly for the third consecutive quarter. But cost and price inflation remain high by historical standards and they are expected to remain so in the three months to come.

The number of people employed by SME manufacturers edged up in the three months to January, but at the slowest pace since April 2021. Headcount is expected to rise slightly faster in the next three months. However, SME manufacturers continue to see a shortage of skilled labour as a key constraint on output in the quarter ahead, alongside uncertainty over orders and ongoing shortages of materials or components (though concerns about the latter have eased from their peak in April 2021).

Against this backdrop, SME manufacturers expect to reduce investment in buildings and in plant and machinery over the next 12 months. Innovation spending is expected to be flat, though expenditure on training is tipped to rise.

Ben Jones, CBI lead economist, said: “SMEs in the UK’s manufacturing sector continue to face significant challenges. Cost pressures remain high and concerns about future demand are weighing on optimism.

“The recent decline in output may be bottoming out, with output expected to be steady in the coming quarter. But SME manufacturers still lack the confidence to invest.

“Businesses will be looking to the Government for signs that the Spring Budget will include actions to get firms investing and help the economy regain some momentum.”

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