Small manufacturers are enjoying the first growth in export orders for almost a decade.
According to the CBI quarterly SME trends survey, the volume of new orders - including domestic - has been growing at its strongest rate for nine years.
Medium firms are faring particularly well and expect order increases over the next three months.
Optimism about the business situation has improved for the first time in two years, reflecting a feeling of continued recovery after declining orders.
But average SME unit costs continued to rise sharply, although rate is expected to ease off over coming months.
Steve Sharratt, chairman of the CBI's SME Council, said: "These results are very encouraging and prove the green shoots of recovery seen earlier in the year continue to flourish. Healthy order volumes have helped lift optimism after years of tough conditions, but margins remain tight and costs are still rising."
Although the last quarter saw small firms shed staff, medium businesses increased staffing.
SME employment is forecast to remain stable over the coming quarter, in contrast to expectations of 23,000 job losses across manufacturing.
"While things are clearly moving in the right direction there is no guarantee that this momentum will be maintained," Mr Sharratt said.
"Policy makers must nurture this sector to ensure continued growth."
SME's employ some 2.4 million people in the UK. The sector contributes around £200 billion to the overall economy.
