SME manufacturing output volumes fell in the fastest rate on record (since October 1988), based on the latest quarterly CBI SME Trends Survey.

The survey of 331 SME manufacturers reported that total new orders within the three months to July also declined in the quickest pace on record, reflected in the fastest falls on record both in domestic and export orders. Additionally, the fall in headcounts in the three months to July broadly matched the record decline seen throughout the financial crisis (in April 2009).

However, business sentiment within the quarter to July improved slightly, following its record pace of decline in April, while export sentiment fell in a much slower pace.

Looking ahead, firms expect output to recuperate at a slow pace within the next three months. Total new orders are expected to be roughly unchanged, with domestic orders likely to be flat and export orders expected to fall at a significantly slower pace. But manufacturers expect headcounts to decline at a slightly faster pace next quarter.

Investment expectations for the next year remained poor, using the share of firms citing uncertainty about demand, cash-flow related concerns, and labour shortages as factors to limit capital expenditure rising to survey record highs.

Alpesh Paleja, CBI Lead Economist, said: “SME manufacturers faced an exceedingly challenging quarter due to the COVID-19 crisis. While firms believe that the worst of the downturn is in it, ongoing cashflow issues and tough trading conditions mean that they aren’t back on their own feet yet. Expectations of some other heavy fall in headcounts is a sign of what is to come.

“It’s clear that firms require more immediate support, from grants to further business rates relief, to tide on them until demand conditions improve more substantially.

“SME manufacturers are also dealing with an additional layer of uncertainty from the prospect of leaving the EU without a trade deal. Alongside driving a sustainable recovery, securing an ambitious cope with the EU will be essential to shielding firms from a further economic shock, at a time when they are least equipped to deal.”

Key findings:

  • Output volumes in the three months to July (-53%) fell in the fastest rate on survey record (since October 1988). Firms expect output recover slightly within the next three months (+9%).
  • Total new orders in the three months to July (-56%) declined in the quickest pace on survey record (since October 1988), reflected in the fastest falls on record in both domestic and export orders (-64% and -55%, respectively).
  • Looking ahead, manufacturers expect total new orders to become roughly unchanged in the next three months (+1%). Domestic orders are expected to be roughly flat (+2%), while export orders are expected to fall at a slower pace (-23%).
  • The fall in headcounts in the three months to July (-43%) broadly matched the record decline observed in April 2009 (-44), and firms expect numbers used to decline at a slightly quicker rate next quarter (-47%).
  • Business sentiment in the quarter to July (+9%) improved slightly, following its fastest decline on record in April (-81%). Export sentiment (-26%) fell in a slower pace than its record drop last quarter (-80%).
  • Manufacturers expect purchase of buildings (-51%), plant & machinery (-42%), and product & process innovation (-7%) to say no in the next year, but to some lesser extent than last quarter. Capital expenditure in training & retraining (-25) is predicted to fall in the year ahead, with expectations similar to those in the previous quarter.
  • The share of firms citing orders or sales as a factor likely to limit output in the next quarter rose to its highest (87%) since April 1999.
  • The share of firms citing uncertainty about demand (75%), inadequate net return (47%), internal finance shortages (38%), wherewithal to raise external finance (29%), and labour shortages (33%) as factors to limit capital expenditure within the next year rose to survey record highs.

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