According to the latest CBI SME Trends Survey, output among small and medium-sized (SME) manufacturers fell in the three months to October, as both domestic and export orders decreased.
Output growth fell at the fastest pace since January 2013, the survey of 434 smaller firms reported. In addition, domestic orders fell for the first time in more than two years, while export orders declined at their fastest pace since 2009.
Going forward, however, domestic orders and output are expected to steady in the quarter ahead and exports are forecast to decline at a slower pace.
Growth in numbers employed weakened in the last quarter, and employment is expected to be broadly flat through to January.
Business optimism fell for the first time since January 2013, as did optimism over export prospects in the year ahead. Firms no longer expect to increase expenditure on product and process innovation in the year ahead.
CBI director of economics, Rain Newton-Smith, said: “As demand has fallen, especially in the face of a strengthening Pound, our smaller manufacturers have had a tough quarter, with orders and output volumes dropping. Manufacturers expect conditions to stabilise somewhat over the quarter ahead, but remain concerned about the outlook for demand.
“Innovation and technology are crucial to driving productivity, and that’s why it’s vital the Government uses the Comprehensive Spending Review to prioritise spending that supports skills and innovation, spurring a revival in productivity growth in the UK.”