Saturday, August 20, 2022

SME manufacturing activity grows at record pace, yet concerns over materials and skills shortages rise

SME manufacturing output grew at the fastest pace on record (since October 1988) in the three months to July, according to the CBI’s quarterly SME Trends Survey.

The survey of 234 SME manufacturing firms also saw the volume of total new orders increase at the quickest rate on record, reflecting a record rise in domestic orders and the quickest export orders growth since January 2019. Furthermore, employment numbers also grew at the strongest pace on record in the three months to July.

Business optimism growth among SMEs in the three months to July remained strong, despite slowing slightly on the previous quarter, while sentiment regarding export prospects stabilised, after five consecutive quarters of decline.

Looking ahead to the next three months, output volumes are expected to grow at a similarly strong rate. Total new orders are anticipated to increase at a slightly slower pace, reflecting a slightly slower domestic orders growth and steady export orders growth. Headcounts are also expected to increase at a similar pace.

Manufacturers’ investment intentions for plant & machinery improved to their strongest on record (since 1988), while firms expect to increase capital spending on training & retraining in the next 12 months (relative to the last 12) to the greatest degree since January 1997.

However, it’s clear that supply-side constraints on output are growing. The share of firms citing concerns about the availability of skilled labour as a factor likely to limit output was at a joint-record high, while the proportions citing other labour or materials/components remained close to their respective record highs.

SME manufacturers also continue to report severe cost and price pressures. Average costs rose at their quickest pace on record in the three months to July. Additionally, firms reported record domestic price growth, and the fastest increase in export prices in four years. Both costs and export price growth are expected to slow somewhat next quarter, while domestic price growth is anticipated to pick up further.

Alpesh Paleja, CBI Lead Economist, said: “The economic recovery has given a significant boost to SME manufacturers, with firms reporting record growth in activity. Buoyant demand has led firms to kick-start their investment plans and increase headcounts. The outlook further ahead is also positive, as businesses expect activity to continue to grow strongly.

“However, mounting staff shortages, rising cost pressures, and shortages of raw materials due to supply chain disruptions are posing a real challenge to the outlook.

“It is vital that government now takes all measures to protect this revival in activity. Test and release could support the continued opening of this sector, and will help ward off further disruption, and vitally, keep our economy open.”

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