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Resilience and Challenges: SME Manufacturers’ Sentiment and Outlook

by Anna

The sentiment among Small and Medium-sized Enterprises (SME) manufacturers has displayed signs of stability for the second consecutive quarter, reflecting a relative improvement compared to the earlier declines witnessed in 2022 and early 2023, according to the latest SME Trends survey by the Confederation of British Industry (CBI). Despite this relative stability, the sector is not without its challenges, particularly in terms of output, new orders, and investment.

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Output and New Orders Dynamics

Output levels faced a decline for the fourth successive quarter within the three months leading up to July. Similarly, total new orders experienced a moderate fall, with the overall volume of total orders categorized as “below normal.” However, the future outlook appears more optimistic, as both output and new orders are expected to experience moderate growth in the coming three months, up until October.

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Supply-Side Factors and Constraints

While supply-side constraints on output have been on a diminishing trajectory, the survey revealed persistent challenges. Labor shortages remain a significant limitation on output for many SMEs, with a historically high proportion identifying this factor. Availability of materials or components also continues to pose a challenge. A notable trend is the increasing proportion of SMEs citing orders or sales as a constraint on their output.

Investment Patterns and Intentions

SMEs appear to have scaled back their investment plans across multiple domains. Capital expenditure on buildings and plant & machinery is projected to decline in the upcoming year. This change is attributed to factors such as the availability and cost of internal finance. Spending on product and process innovation is also expected to decrease, while expenditure on training is anticipated to remain steady.

Expert Insights and Outlook

Ben Jones, CBI Lead Economist, highlighted the subdued sentiment among SME manufacturers, characterized by declines in output and new orders. The uncertainty surrounding demand, persistent labor shortages, and rising finance costs due to increasing interest rates have collectively impacted investment intentions. Jones emphasized the importance of confidence-building measures, ranging from scaling up initiatives like Made Smarter to providing clearer signals about the UK’s stance on international policies.

Key Survey Findings

Business sentiment remained relatively stable over the three months leading to July, although export optimism declined at a faster pace.
Output volumes experienced a decline, yet an upturn is expected in the subsequent three months.

In the face of these complex challenges and changing dynamics, SME manufacturers continue to navigate a delicate balance, striving for growth and resilience amid shifting economic conditions.

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