"Firms are caught between the perfect storm of perennial Brexit uncertainty at home, and sluggish growth in the global economy."
Business optimism amongst SME manufacturing firms deteriorated in the three months to October at the fastest pace since July 2016, according to the latest quarterly CBI SME Trends Survey.
The survey of 240 small and medium-sized manufacturers also found optimism regarding export prospects for the year ahead remained gloomy.
Falling sentiment came against the backdrop of continued malaise in activity. Total new orders fell slightly in the three months to October (-6%), at a similar pace to July (-4%). The decline in new orders was driven by ongoing falls in both domestic orders (-12%) and export orders (-6%). Furthermore, output remained flat in the three months to October and is expected to fall by 9% in the next quarter.
The most prominent factors cited as likely to limit export orders in the near-term were political/economic conditions abroad (64%) and quota/import licence restrictions (26%), both hitting record highs since the survey launched in October 1988.
Meanwhile, headcount declined by 5% for the first time since January 2013, and is expected to fall at a similar pace in the next quarter.
With sentiment falling and uncertainty high, investment intentions remained poor across the board.
Alpesh Paleja, CBI lead economist, said: “Activity among SME manufacturers remains listless. Firms are caught between the perfect storm of perennial Brexit uncertainty at home, and sluggish growth in the global economy. As well as hitting output, orders and hiring, these issues are depressing investment plans across the board.
“As a first step to lifting the malaise, the next government must get behind business to deliver on a Brexit deal, particularly one that unlocks a smooth transition period. Then the real heavy lifting can begin on forging a future relationship with our biggest trading partner. Ending political uncertainty will enable a renewed focus on domestic priorities, which is critical for the economy’s longer-term growth.”
Chirag Shah, CEO of Nucleus Commercial Finance, commented: "The shadow of Brexit is clearly taking its toll on SME confidence across the UK. Business owners are erring on the side of caution and putting their future plans on hold until they know the political outcome and its impact.
"The growth of SMEs is fundamental to the future of our economy and it’s vital that restoring SME confidence is at the top of the political agenda. Government and industry must work closely together to support businesses through these challenging times and demonstrate the positive impact of finance, in enabling businesses to remain fierce in a competitive market."