Strong growth for SME manufacturers

Output growth among the UK’s SME manufacturers picked up in the three months to January. A further acceleration expected next quarter, according the latest quarterly SME Trends Survey.

Total orders growth is expected to pick up further over the next three months, with similar growth in domestic orders expected alongside a sharp acceleration in export orders. As a result, another firm rise in output is also predicted, with expectations for growth also the strongest on record.

Investment intentions were also shown to have improved in the survey, with firms now expecting to increase spending on plant & machinery modestly – the first time that investment intentions have been positive in almost two years.

Employee numbers grew at a solid pace, and growth is expected to continue. However, concerns over skill shortages have increased up, with the number of firms citing skilled labour as a factor likely to limit output rising to its highest since January 1989.

In the face of strong growth in activity, capacity pressures more broadly seem to have intensified, with the proportion of firms working below capacity edging.

Average unit costs growth remained elevated, and costs are expected to grow at a similarly strong pace next quarter. Consequently, domestic price and export price growth has picked up.

Alpesh Paleja, CBI Principal Economist, said: “Growth is going strong for SME manufacturers, who are reaping the benefits of a lower pound and buoyant global growth – as seen in record expectations for export orders growth. But margins are clearly still under pressure, with cost pressures high, and firms expect to raise prices further to regain some ground.

“Furthermore, concerns over skill shortages have rocketed, stoking capacity pressures further. This underlies the importance of establishing a future immigration system that provides companies with access to talent and labour.

“The building blocks of a new system that meets economic needs and public concerns must start with scrapping the net migration target, which has never been fit-for-purpose.”