The UK’s SME manufacturers faced the sharpest drop in optimism in the three months to April 2022 since the onset of the pandemic, with new orders growth weakening and survey record-high growth in both costs and prices, according to the latest CBI
SME Trends survey.
The survey, based on the responses of 234 SME manufacturing firms, found that business optimism fell at the sharpest pace since the three months to April 2020 (-36% from -7% in January), with export optimism also falling sharply (-25% from -9% in January).
Average unit costs grew at the fastest rate in survey history (+90% from +76% in January, data first collected October 1988), as did domestic prices (+60% from +40% in January). Total new orders rose at a slower pace in the three months to April compared with January (+22% from +42%). Firms expect broadly no growth in the next three months (+3%)
Output volumes grew at an above average rate in the three months to April, similar to January (balance of +16% from +19%), but growth is expected to slow in the coming three months (+10%). The percentage of SME manufacturers believing that materials/components shortages will limit output in the next three months reached a survey record high in April (71% from 49% in January).
On a more positive note, numbers employed picked up at a quicker rate than in the three months to January (+21% compared to +13%), with SMEs expecting this to improve again in the next three months (+26%)
Investment intentions for the year ahead weakened across the board compared to January: buildings (0% from +8%), plant and machinery (+17% from +20%) product and process innovation (+13% from +24%), training (+15% from +25%).
Ben Jones, CBI lead economist, said: “It is no surprise that SME manufacturers are feeling less optimistic this quarter. Growth in new orders is expected to come to a halt over the next three months, cost growth is historically strong and concerns over materials shortages continue to rise. This is leading to unprecedented price rises and a hit to investment plans.
“The Government must continue to keep a watchful eye on smaller firms. The extension of support for energy-intensive firms last week was a welcome first step for helping businesses through a difficult period, building greater resilience in the economy. But more could be done to help keep SMEs’ investment plans on track, for example, introducing a permanent successor to the super deduction.”