Small firms feeling the pinch

13 April 2012

SMALL manufacturing firms have seen the pace of their recovery slow, with profits hit by rises in interest rates and the price of oil, according to a quarterly survey of almost 700 companies by the CBI. Costs have risen for the 18th quarter in a row.

Small firms found it difficult to pass on higher costs by increasing prices. There was also moderation in demand from overseas, a market that was previously growing quickly, in particular the US.

Hugh Morgan Williams, chairman of the CBI's SME council, said: 'There is no let-up in cost pressures or in the strength of competition in the market, which both continue to squeeze margins.'

He said that although there was a pause in small manufacturers' recovery, there were signs of a positive trend, with employment figures up for the first time in more than six years.

Some 30% of companies said new orders were up, while 33% said they were down, a balance of minus 3%. Meanwhile, the number of firms working below capacity fell to 52% - the lowest since October 1997.

Williams added: 'The peak in interest rates should not be much higher than the current level, and it is especially important to smaller manufacturers that the Bank of England does not apply the economic brakes too hard as the sector is more vulnerable than most.'

Economics consultancy Cebr reckons that the Bank of England's monetary policy committee, which releases minutes from its last meeting on Wednesday, may soon find it difficult to retain unity on interest rate votes.

Some members may fear a drop in the housing market while others may worry about inflation.

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