Written by Adnan Essa
Posted on 14/05/2013

Lack of credit and falling demand affects manufacturing SMEs

12 reads

In the three months to April weakening demand and a lack of credit resulted in a disappointing quarter for manufacturing SMEs. Despite the negative figures businesses questioned in CBI's SME Trend Survey expect conditions to improve.

The proportion of manufacturers citing external finance as a constraint on capital spending rose to its highest level since October 2010. Of those surveyed 12 per cent indicated that lack of credit would affect their capital spending over the next year.

Over the twelve months manufacturers expect to spend more on product and process innovation (+17 per cent). Other investment intentions are expected to stay broadly similar to last quarter. Firms expect to spend a little more on training and plant and machinery, but a little less on buildings.

In order to invest it's crucial for businesses to have access to credit. With high street lenders largely restricting the amount they lend having a strong credit rating can make all the difference. A strong credit score and trading track record shows that the business is investable; following Graydon's tips can improve a firms chances of success when approaching lenders.

In the three months to April manufacturing SMEs also saw orders and output continue to fall. The decrease was driven by falling demand in both the domestic and export market. Some 23 per cent of firms reported an increase in total orders and 37 per cent said they decreased, giving a balance of -14 per cent, disappointing expectations of growth.

The balance for domestic orders (-15 per cent) was the lowest since January 2012. However while export orders fell, the -8 per cent decline was the slowest since July 2012.

Stephen Gifford, CBI Director of Economics, said, "It's been another disappointing quarter for small and medium-sized manufacturing firms, who have seen new orders and output continue to fall.

"Conditions will remain challenging for the sector. Fears about the impact of political and economic conditions abroad on export demand have risen and there is little sign in this survey that credit conditions are improving."

Despite the weaker than expected activity firms remain optimistic about the overall business situation ahead. Manufacturers expect output and export orders to grow in the next three months. The domestic market is also predicted to stabilise.

Mr Gifford added, "The recent weakening in Sterling will have boosted the competiveness of the UK's smaller manufacturing firms, with a strong pick-up in export orders predicted."

With demand for exports anticipated to increase UK firms could see their supply chains expand as they take advantage of opportunities abroad. Using international credit reports enables firms to see how viable a potential customer or supplier is. Having this information allows businesses to reduce risk and safeguard their firm.

Recent signals suggest that the manufacturing sector is beginning to recover however it's still vital for businesses to put preventive measures in place to reduce the likelihood of knock on effects.