The UK’s small and medium-size enterprises (SMEs) saw optimism deteriorate for the first time in over a year, according to the latest CBI SME Trends Survey (www.cbi.org.uk) for the past three months.

The survey of 374 SME manufacturers reported another firm rise in new orders, underpinned by both export and domestic
demand; and while firms still expect to reduce their investment in buildings, plant and machinery, their investment intentions for the year ahead have not deteriorated significantly and remain above the long-run averages.

Growth in employment and hiring intentions for the remaining quarter is also reported as remaining robust.

Despite output growth slowing over the last period, manufacturers expect a modest pick-up in the final quarter. There are also signs that capacity pressures are ‘biting hard’ (the proportion of firms working below capacity fell to its lowest level since April 1989), while the number of firms citing labour shortages as a limiting factor on investment rose to its highest figure on record (since October 1988).

Growth in both domestic and export output prices slowed over the past three months, indicating that manufacturers’
margins are coming under pressure.

CBI principal economist Alpesh Paleja said: “The latest survey suggests mixed fortunes for our smaller manufacturers. While growth in new orders has held up and head-count has risen strongly, output growth has lost some steam over the last quarter. Coupled with on-going pressure from labour shortages, it is understandable that optimism among manufacturers has fallen.

“The Chancellor should use the forthcoming Budget to fire up our factories by reforming business rates, and setting out a clear plan to bring the UK’s Industrial Strategy to life.”