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Slump in activity easing, SME manufacturers report

SME manufacturing output fell in a considerably slower pace within the three months to October, following July’s record decline, based on the latest quarterly CBI SME Trends Survey.

The survey of 285 SME manufacturers reported that total new orders stabilised, carrying out a survey-record pace of decline last quarter. Domestic orders were broadly unchanged, and export orders fell at a more moderate pace.

But as the decline in employment also slowed from the last quarter, the cut in headcount among SME manufacturers remained significant.

Business sentiment was roughly unchanged within the quarter to October, carrying out a slight recovery in July. Export sentiment fell in a similar pace to the previous quarter.

Looking ahead to another quarter, SME manufacturers expect output to develop at a solid pace. Total new orders are anticipated to pick up slightly, reflecting a slight rise in domestic orders and export orders falling in a more modest pace. Encouragingly, employment is also expected to rise modestly.

While investment intentions for the year ahead remain weak, they've nonetheless improved on the past two quarters. The share of firms citing uncertainty about demand, cash-flow related concerns, and labour shortages as factors to limit capital expenditure also declined considerably from last quarter’s record highs.

Alpesh Paleja, CBI Lead Economist, said: “The thaw in activity appears to be melting for SME manufacturers, and it’s encouraging that output and employment is placed to grow in the quarter ahead. But another national lockdown will inevitably mean that prospects are now looking bleaker.

“However, the step-up in government support is welcome. Particularly, extending the Job Retention Scheme further will give companies the certainty and stability they need to help safeguard jobs. If indications of additional strain are growing among SME manufacturers and their supply chains, the government may need to think about more tailored support in the coming weeks.”

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