THE squeeze on the UK's small and medium-sized manufacturing firms has been highlighted after a survey showed their worst output performance in more than two years.

In the CBI’s latest quarterly SME trends report, the percentage of respondents reporting weaker activity outstripped those seeing higher volumes for the first time since October 2009.

The CBI said the continuing uncertainty over the eurozone and a broader loss of momentum in global growth were being felt by smaller manufacturers.

Alongside the deterioration in activity, optimism about the general business situation has fallen back following an improvement in the previous three months.

Firms also plan to lower capital expenditure in the year ahead and expect to hold off hiring over the current quarter, the CBI added.

Lucy Armstrong, who chairs the CBI’s SME Council and runs Gateshead-based consultancy The Alchemists, 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.”