The latest annual SME Manufacturing survey from the MHA accountancy and business-advisory group reveals that UK manufacturers are becoming more optimistic, increasing their investment in R&D and their capital expenditure, and taking on more staff.

However, Chris Coopey, the head of MHA’s Manufacturing Group, said that “a shortage of recruits at every level is harming future prospects”. Despite nine out of 10 SME manufacturers predicting growth in 2014, the survey found that more than half of them feel unable to pass on any cost increases to their customers. Meanwhile, almost six in 10 say that ‘red tape' is getting worse, despite Government pledges to cut it, and energy costs remain a major issue.

Mr Coopey said: “The underlying trend is very positive for SMEs operating in the manufacturing sector. Many had to restructure during the economic downturn, and they are now reaping the benefits of improved productivity. For the time being, most are looking to absorb any cost increases rather than pass them on. However, that is unlikely to be a sustainable option for the long term.”

Mr Cooper said that one area of increasing concern is the availability of motivated recruits, skilled engineers and graduates: “It is an increasing challenge, with 65% of companies experiencing problems. The manufacturing sector continues to suffer from a shortage of capable and motivated recruits and skilled engineers, including graduate engineers, which is a national scandal.

“This will become a real barrier to growth and will undoubtedly affect the UK's ability to compete on the global stage. One suggestion from the survey respondents is to create an ‘industry to education interface’ that will help the education system to develop young people with the right skills for industry.”