Not quite as bleak as last quarter

Aug 4 2009 Sarah Green is regional director CBI North East, The Journal

THE CBI’s quarterly SME Trends survey was released this weekend and while the overall position is still getting worse, the rate of decline is falling, suggesting things are improving for the region’s SMEs.

By the time the next quarterly survey is compiled many predict they’ll finally see a return to growth. This turnaround will be welcome as the last quarterly survey saw the worst results since it began in 1988.

The reason for the predicted rise is an increase in export orders among medium-sized manufacturers. The weakness of sterling and aggressive cost cutting look finally to be having some effect on exports and optimism in this area has risen to its highest since 2007. This is good news for the North East as more of our output is exported than in other regions.

There are still concerns. Access to credit and finance is continuing to constrain some firms’ export and output plans, particularly the smallest companies. Firms are still running down stocks aggressively and seven out of 10 are working below capacity.

Firms have continued to reduce headcount in the past three months. Some 40% cut numbers employed, while 8% took on staff, giving a balance of -32%, a slightly slower decline than in the previous quarter.

To conclude, business conditions remain difficult for the UK’s small and medium-sized manufacturers. Orders and output are still falling, but things aren’t quite as gloomy as they were three months ago.

So far, the relative weakness of sterling has not given firms much of an export boost. It is therefore encouraging that medium-sized companies are hopeful overseas orders will pick up in the next quarter. Medium-sized firms are also benefiting from better access to credit, unlike smaller companies which tend to have fewer options.

It is unclear when a return to growth for smaller firms will come, and it is worrying credit constraints remain a concern. But we hope these will loosen in coming months as the flow of finance to SMEs increases.

The outlook for medium-sized firms looks positive, but it is too early to say whether export-led growth will be a platform for sustained recovery. But these results are a step in the right direction.