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UK SME manufacturers face decline for first time since April 2020

Suban Abdulla
·3-min read
For the next three months output is set to fall alongside total new orders, with declines in both domestic and export orders. Photo: Getty
For the next three months output is set to fall alongside total new orders, with declines in both domestic and export orders. Photo: Getty

Small and medium sized (SME) manufacturing companies in the UK face a decline in output in the next quarter for the first time since April 2020.

According to the Confederation of British Industry’s (CBI) quarterly SME Trends survey, SME manufacturing output stabilised to -2% in the three months to January from -15% in October.

But despite the figures the survey of 267 SME manufacturers predicts a decline for the next three months, with output expected to shrink slightly to -6%.

SME manufacturers saw a record quick decline to -53% in July last year.

For the next three months output is set to fall alongside total new orders, with declines in both domestic and export orders.

Total new orders in the quarter to January declined to -7% from -1% in October. With domestic orders falling slightly to -6% from +3%.

But export orders grew at the fastest pace in two years (+10% from –19%).

Manufacturers expect total new orders to fall at a similar pace over the coming quarter (-10%), with declines in both domestic (-21%) and export (-10%) orders.

Employment numbers also fell again (-16%), but at a slower pace than in the previous two quarters, but headcount is tipped to stabilise in the coming quarter to 0%.

The survey was conducted from 16 December to 13 January — covering the Brexit agreement at the end of the year and the return to lockdowns in England and Scotland.

Consequently, SME manufacturers saw optimism deteriorate, with export sentiment also falling, although at a slower pace than in previous quarters.

Business sentiment in the three months to October dropped to -8% from +1% in October. Export optimism also deteriorated, but at a slower pace than in previous quarters to -10% from –24%.

READ MORE: UK construction sector unexpectedly shrinks despite avoiding lockdown restrictions

The average costs grew at the fastest pace since April 2019 to +32% from +12%, while domestic prices also increased (+8% from -3%). Export prices were unchanged (+2% from -12%)

Cost growth is set to rev up further in the coming three months (+47%), leading to domestic (+19%) and export (+10%) price growth to pick up.

Investment intentions for the year ahead remain weak, with manufacturers poised to cut back capital expenditure on buildings (-23%) and plant and machinery (-11%), but to a lesser extent than in 2020.

Charlotte Dendy, CBI Principal Economist, said: “Output has stabilised for SME manufacturers over the past quarter, however tighter lockdown restrictions are likely to stunt activity in early 2021. With output and new orders set to fall next quarter, alongside increased costs and material shortages, the outlook remains challenging.

“Vaccine progress is encouraging, but with restrictions likely to be in place for a while yet, it is vital that business support moves in lockstep.

“Businesses are craving clarity on what lies ahead and want to see action before the Budget.

“Avoiding a cliff-edge end to support in April is essential. Extending the Job Retention Scheme and repayment periods for VAT deferrals until the end of June would offer much-needed breathing space and protect companies and livelihoods.”

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