SMALL and medium-sized manufacturers have reported the fastest growth in order volumes for 16 years today.
But employers’ organisation the CBI warned that smaller firms were being squeezed for “intense” cost pressures.
The CBI’s latest quarterly SME Trends Survey revealed that volumes of domestic and export orders among smaller firms rose at the fastest rate since April, 1995.
Of the 414 respondents, 39% reported a rise in the volume of domestic orders in the three months to April and 23% a fall, giving a balance of plus 16%.
For export orders, 37% said volumes increased and 14% said they declined, giving a balance of plus 23%.
Strong demand at home and abroad, coupled with stock rebuilding, helped push up output further.
A balance of plus 18% of firms said production rose compared with plus 13% in the previous quarter.
With demand and output rising, a balance of plus 16% of firms increased their headcount, the fastest rate since January, 1995, when the balance stood at plus 17%.
But alongside strong growth, production costs increased rapidly, weighing on profit margins.
A balance of plus 53% of firms said average unit costs rose – the highest since October, 2008, when the balance stood at plus 53%.
That led to sharp rises in average domestic prices at plus 26% and export prices at plus 31%, both in line with expectations.
Domestic prices rose at the fastest rate since April, 1995, with a balance of plus 32%.
Export prices saw the sharpest rate of increase since the survey began in October, 1988.
Lucy Armstrong, who chairs the CBI’s SME Council, said: “Smaller manufacturers are enjoying strong demand for goods at home and abroad, underpinning robust growth in production.
“Headcount has increased for the third consecutive quarter as firms try to keep up with demand and output is expected to rise again in the coming months.
“However, inflationary pressures remain a dark cloud, with rising oil and commodity prices pushing up the cost of production and eating into profit margins.
“Manufacturers have raised output prices rapidly to cope and expect to continue doing so over the next quarter.”
The survey said inflationary pressures showed no sign of easing in the coming quarter, with firms expecting unit costs to increase sharply again – plus 52%.
Firms expect demand to continue to strengthen in the next quarter, though at a slower rate.
While firms anticipate a similar rise in output, growth in domestic and export orders are set to ease – although remaining well above long-run average rates.