Optimism among small and medium-sized manufacturers rebounded sharply in the three months to January, but this failed to boost output and orders, according to the latest quarterly CBI SME Trends Survey.
The survey of 279 SME manufacturers reported that optimism about the business situation rose at the strongest pace since April 2014 in the quarter to January. The upward swing in growth from the previous quarter was the largest improvement in optimism in a single quarter in the survey’s history (since October 1988). Optimism about export prospects also rose for the first time since July 2018.
However, output volumes and domestic orders fell in the three months to January, while export orders were flat. But output and domestic orders are expected to grow in the quarter ahead.
Chiming with the weak activity this quarter, numbers employed fell (at a similar pace to the previous three months) and are expected to remain flat in the next quarter.
Investment intentions for the year ahead improved across the board. Spending plans for buildings, plant & machinery and product & process innovation all rose above their long-run averages, though point to only flat or slightly higher capital spending in the next twelve months. Furthermore, SME manufacturers still expect to cut back on investment in training & retraining, where investment plans remain below historic norms.
Labour shortages rose further as a cited constraint on capital spending, reaching another survey high.
Alpesh Paleja, CBI Lead Economist said, “It’s brilliant the UK’s small and medium-sized manufacturers are feeling markedly more optimistic about the business outlook, with the outlook for activity and investment looking more hopeful too.
“But scratch the surface, and it seems that SME manufacturers are still struggling. This continues the theme seen across the recent swathe of economic data: sentiment and expectations clearly improving, but little sign of it feeding through to activity.
“Furthermore, businesses are still grappling with longer-term uncertainty around the end state of Brexit. It’s the vital the Government works quickly to secure a good trade deal with the European Union: one that shores up British manufacturers, protects jobs and allows industry to grow.”