SME manufacturing output held flat in the three months to April but is expected to improve markedly in the coming quarter, according to the CBI’s quarterly SME Trends Survey.  

Of 260 SME manufacturing firms surveyed, optimism grew at the fastest pace in seven years, reflecting a rise in domestic orders, while export orders were flat. Employment numbers also ticked up in the three months to April, for the first time in two years.  

Next quarter, output and domestic orders are expected to return, with predictions for output growth at the strongest in the survey’s history (since 1988). However, export orders are set to decline.

Investment intentions for the year ahead are also much improved. In particular, capital expenditure plans for plant and machinery turned positive for the first time since mid-2018 and are now the strongest on record. Investment plans for training and retraining and product and process innovation also improved considerably, with the latter now at its strongest since October 1996.  

However, inflationary pressure appears to be building. Average costs ramped up at the fastest pace in ten years, with domestic and export prices growth also picking up. Costs are set to increase further next quarter, and domestic price growth is expected to improve further.

Rising costs are in part linked to continued shortages of raw materials. The proportion of manufacturers citing materials or components as a factor likely to limit output over the next three months rose to the highest on record. Perhaps linked to this, stock building of raw materials also picked up.

CBI lead economist Alpesh Paleja said: “SME manufacturers are poised for strong growth and are sunnier in their outlook, consistent with the overall picture for the economy over quarter two.

“But not all is rosy: companies clearly remain under the cosh, with cost pressures mounting and raw materials shortages persisting thanks to Covid-related supply chain disruption.

“As the end of the reopening roadmap hoves into view, manufacturers need clear guidance from Government on the state of play beyond June, so they can plan, prepare and strengthen their supply chains – ensuring they can continue to operate safely and profitably.”