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Output volumes fall for UK SMEs

The worst performance of British small and medium-sized manufacturers in more than two years.

In a survey of 359 small and medium-sized manufacturers (SME) in the UK, conducted by the Confederation of British Industry (CBI), 28 per cent said that output volumes had deteriorated during the last quarter, while 23 per cent reported a rise in volumes.

The resulting balance of -5 per cent is the first fall since October 2009 (-14 per cent). However, firms expect output to be broadly flat in the coming quarter (+2 per cent).

The research, carried out between 25 June and 11 July 2012, found that export orders declined by 4 per cent during the last quarter, while domestic orders were flat at 2 per cent. Over the next quarter, the CBI expects orders and output prices to fall, while costs should remain flat.

In line with expectations, SMEs increased headcount by 11 per cent during the quarter, though manufacturers expect to hold off hiring for the next quarter. Optimism about the general business situation fell by 13 per cent during the quarter, following an improvement in the previous quarter.

The survey also found that SMEs reduced domestic output prices by 4 per cent, while export prices were steady (-1 per cent) for the third consecutive quarter. Average unit cost inflation (+8 per cent) eased significantly and is now at its lowest since October 2009 (+3 per cent).

Lucy Armstrong, chair of the SME council at CBI, said:

Challenging domestic conditions, continuing uncertainty over the eurozone and a broader loss of momentum in global growth, are clearly taking their toll on the UK’s smaller manufacturers.

Production has fallen over the last three months and sentiment has deteriorated, while growth in demand has stalled, with little improvement expected in the coming quarter. Nonetheless, smaller manufacturers have stuck by their plans to take on more staff - an increase in numbers employed is perhaps one of the few bright spots in an otherwise muted picture.

During the survey period, the pound averaged €1.25 and $1.56, while brent crude averaged $97.14 per barrel (previous quarter: €1.20 and $1.59 and brent crude $123.78 per barrel).

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.