Domestic orders grew at the fastest pace in two years to give the UK’s small and medium-sized enterprises (SMEs) a welcome boost ahead of Brexit, according to a new survey.
Almost a third of SMEs say domestic demand has increased, according to a survey by the Confederation of British Industry (CBI).
The outlook for the next year is generally positive, with 29 per cent of the 422 SMEs surveyed optimistic compared with 14 per cent whose views for the coming year had become gloomier.
Alpesh Paleja, principal economist at the CBI, said: “Activity among SME manufacturers is ticking along nicely, with new orders growth reaching a two-year high. The pick-up was largely shouldered by domestic demand with exports yet to see any material boost from the weakness in sterling.”
However, the survey also highlights the threat of inflation looming over the British economy, with average unit costs rising at the fastest rate since April 2011 as cheaper sterling feeds through. A 46 per cent balance believes unit costs will rise further over the course of the next year.
The pound has fallen by around 16 per cent from its pre-referendum peak, pushing up the producer price index (the amount paid by firms at the factory gate) to 2.7 per cent as imports become more expensive.
Read more: UK inflation rises faster than expected
The fall has benefited exporting firms, with a 15 per cent balance of SMEs predicting export orders will rise in the coming months.
Plans for capital spending were higher than long-run averages, although still with a balance believing new investment would be lower.