Optimism has deteriorated among the UK's small and medium-sized (SME) manufacturers for the first time in more than a year, according to a new survey.
The Confederation of British Industry's (CBI) SME trends survey found that despite a firm rise in new orders underpinned by both export and domestic demand, growth in hiring intentions and stable investment plans, optimism dropped.
The CBI found output growth had slowed over the past three months, though manufacturers expected a "modest" pick-up in the coming quarter.
Capacity pressures are also hurting SMEs, with the proportion of companies working below capacity falling to its lowest since April 1989. The number of firms that said labour shortages were a limiting factor on investment also rose to the highest level on record - October 1988.
Pricing pressures were also biting with growth in both domestic and export output prices slowing over the past three months, indicating that manufacturers' margins were coming under pressure.
Alpesh Paleja, CBI principal economist, said:
The latest survey suggests mixed fortunes for our smaller manufacturers. While growth in new orders has held up and headcount has risen strongly, output growth has lost some steam over the last quarter. Coupled with ongoing pressure from labour shortages, it’s understandable that optimism among manufacturers has fallen.
“The chancellor should use the Budget to fire up our factories by reforming business rates, and setting out a clear plan to bring the UK’s industrial strategy to life," Paleja added.