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Surveys shed a little light over economic gloom07 August 2009
The rate of decline in orders and output among the UK’s small and medium-sized manufacturers is slowing, according to the CBI’s latest quarterly SME Trends Survey. Moreover, medium-sized companies are predicting a return to growth in the next quarter, thanks to an improvement in export orders.
Of the 480 small and medium sized firms surveyed, 51% saw the volume of total new orders fall in the three months to July, while 17% reported a rise. The resulting balance of -34% is an improvement on the previous quarter’s balance of -51%, which was the worst figure since the survey began in 1988. The volume of manufacturing output continued to fall with 43% of firms saying it declined, and 15% saying it rose, giving a balance of -28%. This marked a slower rate of decline than the previous quarter’s survey low of -48%.
Looking ahead to the next quarter, expectations for volumes of total new orders (a balance of -8%) and output (-9%) remain negative for small and medium sized firms as a whole, but medium-sized companies are predicting an export-led bounce in orders and output.
Optimism about the business situation among small and medium-sized manufacturers is falling at a slower rate (a balance of -9%), compared with a balance of -42% in the previous quarter. Russel Griggs, chairman of the CBI’s SME Council, elaborates:
"Business conditions remain difficult for the UK’s small and medium-sized manufacturers. Orders and output are still falling, but things aren’t quite as gloomy as they were three months ago. So far, the relative weakness of Sterling has not provided firms with much of an export boost. It is therefore encouraging that medium-sized companies are hopeful overseas orders will pick up in the next quarter, helping raise total orders and output. Medium-sized firms are also benefiting from improved access to credit, unlike smaller companies which tend to have fewer funding options available to them.
"The outlook for medium-sized firms looks positive, but it is still too early to say whether export-led growth will deliver a platform for sustained recovery. It is unclear when a return to growth for smaller firms will come, and it is worrying that credit constraints remain a concern. However, we hope these will loosen over the coming months as the flow of finance to SMEs increases."
Volumes of domestic orders remained weak in the previous three months (a balance of -38%), and are expected to shrink again in the next quarter (-13%). Despite the relative weakness of Sterling and aggressive cost cutting, volumes of export orders shrank by more than expected in the three months to July (a balance of -32%). They are expected to decline again in the next three months, but at a much slower rate (a balance of -9%).
However, firms are the most optimistic about export prospects since April 2007 (a balance of 5%), and medium-sized companies expect the volume of export orders to rise in the next quarter (a balance of 27%). This would push the volume of total orders for medium-sized firms into the positive (a balance of 10%).
Firms have continued to reduce their headcount in the last three months. Some 40% cut numbers employed, while 8% took on staff, giving a balance of -32%. That is a slightly slower rate of decline than the previous quarter (a balance of -44%).
But while these indicators do suggest an easing of the situation, access to credit and finance is continuing to constrain some firms’ export and output plans, particularly those of the smallest companies. Firms are still running down their stocks aggressively and seven out of ten firms are working below capacity.
Meanwhile, the Association for Consultancy and Engineering (ACE) suggests there is cautious optimism among sector companies, which it will reveal in more detail next month in its annual State of Business report. Findings from this 32-page document - compiling answers from a sample of members surveyed over five main sections - indicate that while the current economic climate is challenging, there are still opportunities for growth in the consultancy and engineering sector. Chief executive Nelson Ogunshakin said that while many member firms had found the last twelve months tough going, the situation was not all doom and gloom.
"Considering this report has been produced against a background of economic stress, the results could have been far worse," he said. "We're not trying to pull the wool over anyone's eyes - the past year has been devastating for some companies and that is an unpleasant but unavoidable truth."
ACE recently published an executive summary in anticipation of this year's report, which will be launched on 7 September 2009. It pointed to a decline in construction output over the near term as well as constrained public spending, a difficulty in maintaining staff levels and limited access to skills. This year's full report is expected to show the effects on ACE member firms of a challenging 12 months for the consultancy and engineering sector, with workloads and fee levels coming under heavy pressure while competition for each tender has also increased.
"When the credit crunch developed into a full scale economic recession, it presented the biggest challenge to the industry in almost 20 years," said Mr Ogunshakin. "Challenging times and tough decisions still lie ahead, although levels of confidence and investment should begin to strengthen through 2010."
Les Hunt
Editor
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