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).