Growth in the manufacturing sector for smaller engineering companies is likely to stall in the next three months in the face of weaker demand, according to a survey by the Confederation of British Industry (CBI).
Although demand held up well in the last quarter as production grew among the UK’s smaller manufacturers, the next three months are expected to see orders dropping off.
The CBI survey came in the wake of a study by insurer QBE which found that a majority of manufacturing and engineering SMEs (83%) were unlikely to take on new staff this year.
Firms surveyed by the CBI anticipated a fall in output in the next quarter as domestic and export orders weakened. The balance of firms expecting orders to weaken was -5% for domestic orders and -3% for exports. Total orders were expected to fall (-4%). A balance is the difference between the percentages of manufacturers reporting an increase and those reporting a decrease.
The survey’s findings followed an encouraging three months for engineering SMEs. Forty-one per cent of firms surveyed said output had risen in the three months to July, while 20% said it fell. The resulting balance of +21 is the fastest growth since April 1995 and an improvement on the previous quarter, the CBI said.
Russel Griggs, chairman of the confederation’s SME Council, said: “Smaller manufacturers enjoyed a bumper quarter with production ramped up to meet growing demand and to rebuild stocks.
“Exports are leading the charge, reflecting the pick-up in global trade and the relative weakness of sterling, but firms are still seeing their profit margins squeezed because of rising costs.
“Firms do not expect such strong growth to be sustained into the coming quarter. Output is expected to dip slightly as demand looks set to weaken.”
Input costs rose in the last quarter but firms said they were not able to pass on the increases to customers. Companies said, however, that access to credit had improved. Just 4% of engineering firms said credit or finance constraints were likely to limit export orders, compared with 12% in the previous quarter.