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Uplift for smaller manufacturers

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Small manufacturers enjoyed an increase in production in the three months to January, a new report has revealed.

The CBI’s latest SME Trends Survey found that an improvement in domestic demand for UK manufactured goods helped to cement recovery in the manufacturing sector.

Of the small manufacturers surveyed, 30 per cent reported that the volume of output rose during the quarter to January, while 17 per cent said that there had been a dip in demand.

Although the resulting balance of +13 per cent was weaker than the expected +19 per cent, it was still up on the +9 per cent recorded in the previous quarter.

Output was boosted by a rise in domestic orders, with 28 per cent of firms reporting an increase in volumes, and 20 per cent a fall, giving a balance of +8 per cent. That is the fastest increase since January 1997 (+11 per cent).

Export orders also rose, with 29 per cent of SMEs reporting a rise, and 20 per cent a decline. The resulting balance of +9 per cent was down marginally on the previous quarter (+11 per cent).

However, profit margins have been squeezed by higher costs, the report said, with average unit costs climbing sharply for 28 per cent of firms.

As a consequence, there was inflationary pressure on prices: both average domestic prices and export prices rose.

In the next quarter, a third (31 per cent) of firms expect unit costs to increase again, and domestic prices are predicted to rise even further.

Lucy Armstrong, chairman of the CBI’s SME council, said:?”Manufacturing is one of the few bright spots in the economy and this survey underlines the important role of smaller firms in delivering growth and jobs.

“With domestic orders steadily improving and production rising, firms are increasing their headcount to keep up with demand.

“But smaller manufacturers are facing intense cost pressures and are being forced to pass these onto customers. Both domestic and export prices have already risen, and an even sharper increase is expected in the coming quarter.”