Comment & Analysis

Click to enlarge photo

Manufacturers are seeing orders and output dwindle at their fastest pace for 20 years, the CBI business group has warned.

Its latest survey of almost 500 small and medium-sized firms found 64% reporting falling orders in the three months to April, with just 13% signalling a rise.

The overall balance of 51% reporting declining orders is the worst result since the survey began in 1988.

In contrast, UK firms increasingly believe the worst of the recession could be over, according to a new report by BDO Stoy Hayward.

The CBI found a balance of 48% reporting sliding output as the recession deepened - another all-time low for the survey.

Russel Griggs, chairman of the CBI's SME Council, said it had been "a torrid few months" for smaller manufacturers.

"With orders and output falling at the fastest rate since this survey began, many firms have had no option but to let staff go," he said.

Exports are also shrinking at a faster pace than expected by firms despite the weakness of the pound, while domestic orders were also very weak.

But the CBI added that firms were hopeful that the pace of the decline could ease in the three months ahead, although companies are also scaling back training and investment due to finance and credit worries.

"Although companies seem hopeful that the pace of decline in manufacturing activity may be moderating slightly, the next three months are still going to be very tough for many firms," Mr Griggs added.

The glimmers of hope follow the latest survey by the Chartered Institute of Purchasing & Supply, which saw its activity index rise to an eight-month high in April.

The data will be weighed up by Bank of England rate-setters in their latest policy meeting this week.

The Monetary Policy Committee is expected to keep interest rates unchanged at a record low of 0.5% as it considers the impact of its programme to kick-start the economy with £75bn in newly created money.