UK SME manufacturers’ optimism rebounds, but activity remains subdued

The latest survey of SME manufacturers by the Confederation of British Industry (CBI) reported that optimism about the business situation rose in the quarter to January 2020, at the strongest pace since April 2014. 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 respondents expect output and domestic orders 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 and machinery and for product and process innovation all rose above their long-run averages, although they 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 and retraining, where investment plans remain below historic norms.

Labour shortages rose further as a cited constraint on capital spending, reaching another survey high.

“SME manufacturers are still struggling”

Alpesh Paleja, CBI Lead Economist, commented: “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.”

You can see the detailed survey findings here.

Are you confident or doubtful about the outlook for your business during the coming year and beyond? For advice on dealing with the uncertainty around Brexit, email me or call me on 020 7099 2621.