Small and medium-sized manufacturers are cutting staff for the first time in eighteen months, as demand for UK made goods at home and abroad weakens in the global economic slowdown, a CBI survey out today shows.
The CBI s latest quarterly SME Trends survey found that 17% of small and medium-sized businesses had expanded their workforce in the last three months, while 29% had reduced the numbers they employed. The resulting balance of -13% represents the biggest quarterly fall in employment since October 2003, down from July s figure of +6%.
Job prospects are expected to worsen in the next quarter with a balance of 27% firms saying they will reduce their headcounts further.
Both domestic and export orders contracted at a faster rate than in July (a balance of -40% for domestic orders and of -16% for export orders). As a result the volume of total new orders decreased with a balance of 33% firms reporting a drop. SMEs see no let-up in the coming quarter with total orders (a balance of -35%), domestic orders (-37%) and export orders (-17%) all expected to fall further.
Output deteriorated at a faster rate with a balance of 24% reporting a fall in October compared to 9% in July. This weighed heavily on sentiment with optimism about the business situation (a balance of -57%) falling at its fastest rate since October 2001 when it was also -57%.
Average unit cost growth eased from the July peak of a balance of +62% to +53% in October, reflecting falling commodity prices and weaker demand. There are also signs that SMEs are seeing a continued squeeze on profit margins as average domestic price growth dropped slightly (a balance of +16% compared to +20% in the previous quarter). Firms expect growth of unit costs (a balance of +42%) and domestic prices (+12%) to soften further in the coming quarter.
Six per cent of firms said access to credit or finance was likely to limit output in the coming quarter, and one in ten said it was likely to limit export orders. A third of businesses surveyed said political and economic conditions abroad would limit export orders - the highest figure since April 2003.
Investment intentions have also been scaled back, with the largest reduction in buildings expenditure planned since the early 1980s recession.
Russel Griggs, Chairman of the CBI s SME Council said: 'After more than a year of steady growth on the jobs front, we are now starting to see SMEs reducing their headcount in response to weakening demand in the face of global economic slowdown.
'Given the speed at which the downturn has hit every sector of the economy it is not surprising that small and medium-sized businesses are also seeing orders and output hit - both at home and abroad - despite the relief provided by falling commodity prices.
It is worrying that more SMEs are finding a lack of credit affecting business decisions. But the bold rate cuts of recent weeks and measures to support SMEs should help prevent a further credit squeeze but the impact is unlikely to be immediate.'