Small firms suffer despite recovery in manufacturing

20 August 2003
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21 August 2003 | Robin Parker

Signs of a recovery in Britain's manufacturing base have been tempered by evidence of further suffering for smaller firms.

Orders fell for the tenth quarter in a row, according to the Confederation of British Industry's (CBI) quarterly SME trends survey.

One in three of the 877 firms polled was less optimistic than three months ago. Job cuts, rising costs and greater pressure on margins all contributed to the malaise.

New orders and output volumes continued to fall, and against expectations, exports fell significantly, largely owing to competition and weak exchange rates with the US dollar.

By contrast, the July purchasing managers' index for manufacturing, produced by CIPS and NTC Research, showed growth in the sector for the first time in eight months as the PMI reached its highest level since last May.

Stocks of finished goods rose for the first time in more than three years. Firms reported more new orders and a desire to meet this demand at short notice after a long period of contraction.

In the US, manufacturers reported growth for the first time in five months. And the Reuters euro-zone manufacturing PMI, while still below the 50 mark that indicates no change on the month before, rose slightly after declining for five consecutive months.

Simon Bartley, chair of the CBI's SME council, said small firms remain financially vulnerable despite the slight recovery.

"We must hope that low interest rates around the globe will improve the sector's fortunes, but at the moment the signs are that SMEs in manufacturing are continuing to struggle," he said.

Caution has also been signalled about similar growth in the UK's service industry, whose PMI grew to 56.6 - the fastest growth in more than a year.

Regional Economic Prospects, an annual report by analysts Cambridge Econometrics, predicted a sharp slowdown in services, particularly in the south of England.

Slow household spend, weaker tourism and lower consumer confidence would all hit the industry hard for the rest of 2003.

SMaug2003

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