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Conditions improve for smaller manufacturers

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Trading conditions may not be quite as gloomy for UK manufacturers than they were three months ago, according to the latest CBI survey.

The CBI’s quarterly SME trends survey found that the rate of decline in new orders has slowed and that medium-sized firms are even predicting a return to growth in the next quarter.

Of the 480 SMES that took part in the survey, 51 per cent reported that the volume of total new orders fell in the three months to July, while 17 per cent reported a rise.

However, the balance of -34 per cent is an improvement on the previous quarter’s balance of -51 per cent, the worst since the survey began in 1988.

There was less bleak news on output too. Although the volume of manufacturing output continued to fall, with 43 per cent of firms experiencing a decline and 15 per cent enjoying a rise, the balance of -28 per cent marked a distinct move forward on the -48 per cent registered in the previous quarter.

While next-quarter predictions for total new orders (a balance of -8 per cent) and output (-9 per cent) are still in negative territory for SMEs as a whole, medium-sized firms are anticipating an export-led recovery in orders and output.

Russel Griggs, chairman of the CBI’s SME council, said: “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.”

Mr Griggs added: “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.”

Another survey, this time conducted by the Chartered Institute of Purchasing and Supply (CIPS), revealed a brighter picture still.

The CIPS manufacturing index climbed to 50.8 during July, up from 47.4 in the previous month, where any figure above 50 indicates growth rather than contraction.

This the first time the index has registered growth since March of last year.

The new order marker, the CIPS reported, was up to 55.9 from June’s 49.8, hitting its highest level since November 2007.

David Noble, the chief executive officer of the CIPS, commented: “The manufacturing sector has clearly pulled out of the nosedive it was in earlier this year and is no longer plummeting. Firms continued to slash inventories so severely that the downturn has been much deeper than might have been expected. However, output and new orders are both now rising as firms need to order new stock to meet sales.”

Analysts, though, warned that any recovery is tentative and fragile, and could be headed off by a strengthening in the value of sterling.