Rising output and exports lift optimism among SMEs

Optimism among small manufacturers has reached its highest level since records began 26 years ago as it emerged that the UK is poised to be the strongest-performing major economy in western Europe this year and next.

Katja Hall: We need to see more firms exporting their products to high-growth markets

According to the CBI, manufacturing firms enjoyed a boost in output and orders during the three months to April, helped by a rebound in exports despite the strengthening pound.

Today’s survey of 366 small- to 
medium-sized enterprises (SMEs) came as the European Commission’s latest forecasts show the UK economy is set to expand by 2.7 per cent this year, well ahead of the 1.2 per cent growth pencilled in for the 18-member eurozone.

For the wider European Union, which includes those countries that do not use the euro, growth of 1.6 per cent is expected this year, rising to 2 per cent in 2015.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “While the commission’s spring forecasts for the UK make generally encouraging reading for both the government and the Bank of England, they may well actually turn out to be conservative on the growth front.

“With the UK economy confirmed at having got off to a robust start to 2014 with expansion of 0.8 per cent in the first quarter following its much improved performance in 2013, we now believe it can achieve growth of 3 per cent this year.”

In February, the CBI said rising exports and a rebound in business investment would help the UK deliver economic growth of 2.6 per cent in 2014, up from the 2.4 per cent previously forecast by the employers’ organisation.

Katja Hall, chief policy director at the lobby group, today said a return to growth for exports helped drive a boost in manufacturers’ job numbers in the three months to April, and employment is set to accelerate during the coming quarter.

She said: “It’s very encouraging to see record levels of optimism among smaller manufacturers, on the back of robust growth in domestic and export orders, and a leap in output levels. Hiring is also on the up, and is set to strengthen as we look ahead into 2014.”

Hall added: “As confidence beds in, we need to see more firms exporting their products to high-growth markets across the globe, giving a healthy and sustainable boost to the UK’s recovery.”

The CBI survey found 46 per cent of firms were more optimistic regarding their business situation, while 10 per cent were less optimistic. This gave a balance of 36 per cent – the highest on record since October 1988.

Today’s findings back up recent figures showing business optimism among manufacturers as a whole was at its best since 1973, but it is the performance of smaller firms in particular that is seen as key to a sustainable recovery.

Official data last week showed the sector grew by 1.3 per cent in the first quarter, its best performance for nearly four years, although it remains 7.7 per cent below its pre-crisis level.

With the economic recovery gathering pace across Europe, the eurozone’s unemployment rate is predicted to drop to 11.8 per cent this year, lower than the Commission’s February forecast of 12 per cent. Despite this, inflation is still expected to remain well below the European Central Bank’s (ECB’s) target of just below 2 per cent.

High unemployment, combined with government spending cuts and tight credit conditions have constrained price rises and the commission lowered its earlier forecast of 1 per cent inflation for the eurozone this year to 0.8 per cent.

The ECB holds its next rate-setting meeting on Thursday, but economists believe it is unlikely to lower borrowing costs in a bid to boost inflation.