"The economic recovery has given a significant boost to SME manufacturers, with firms reporting record growth in activity."
Output volumes increased by 36%, compared to a drop of 3% in April, and growth is expected to continue at a similar pace in the coming quarter (+35%).
Numbers employed in the last quarter also grew at the fastest pace on record, up 30%, with similar growth expected in the next three months (+27%).
The survey of 234 SME firms also saw the volume of total new orders increase at the quickest rate on record, reflecting a record rise in domestic orders and the quickest export orders growth since January 2019.
Business optimism growth among SMEs in the three months to July remained strong, despite slowing slightly on the previous quarter, while sentiment regarding export prospects stabilised, after five consecutive quarters of decline.
The share of firms citing concerns about the availability of skilled labour as a factor likely to limit output was at a joint-record high, while the proportions citing other labour or materials/components remained close to their respective record highs.
SME manufacturers also continue to report severe cost and price pressures. Average costs rose at their quickest pace on record in the three months to July.
Additionally, firms reported record domestic price growth, and the fastest increase in export prices in four years. Both costs and export price growth are expected to slow somewhat next quarter, while domestic price growth is anticipated to pick up further.
Alpesh Paleja, CBI Lead Economist, said: “The economic recovery has given a significant boost to SME manufacturers, with firms reporting record growth in activity. Buoyant demand has led firms to kick-start their investment plans and increase headcounts. The outlook further ahead is also positive, as businesses expect activity to continue to grow strongly.
“However, mounting staff shortages, rising cost pressures, and shortages of raw materials due to supply chain disruptions are posing a real challenge to the outlook.
“It is vital that government now takes all measures to protect this revival in activity. Test and release could support the continued opening of this sector, and will help ward off further disruption, and vitally, keep our economy open.”
Chirag Shah, CEO of Nucleus Commercial Finance, commented: “It’s extremely welcome news to see manufacturing activity growing at record pace and businesses looking to invest in their futures, with firms expecting to increase capital expenditure on training and retaining in the next year. These figures are reflective of the easing of lockdown restrictions and mirror the demand we’re seeing among manufacturing firms.
“However, it’s clear that challenges still remain for the manufacturing sector, despite its continued momentum. Not only are we seeing the impact of Brexit which is resulting in the shortage of labour of construction workers, but this is also having a knock-on impact on wage inflation in this space.
“Looking ahead, it’s vital that the government and industry work collaboratively, to provide businesses with the support and access to finance they need so they can invest in their futures and contribute to UK GDP.”
