Smaller manufacturers are facing tough trading conditions with output, orders and employment all falling, the CBI warned yesterday.
However, its quarterly survey of small and medium-sized enterprises in the manufacturing sector also showed a deterioration in optimism about both the general business situation and export prospects.
The survey showed that 20 per cent of firms saw orders rise over the past three months but 39 per cent saw them fall. The balance of minus 19 per cent compares with a balance of plus three per cent in the last survey.
Over the next three months, SMEs overall expect orders to remain broadly unchanged. However, this masks a contrast between small firms predicting a fall and mediumsized firms expecting a rise.
Numbers employed by SMEs fell over the past three months, with 17 per cent of firms taking on more staff and 25 per cent taking on fewer, a balance of minus nine per cent.
Small firms reported the sharpest falls in numbers employed since October 2003, and although medium-sized firms reported broadly unchanged numbers, they expect to reduce employment over the next three months.
Average unit costs for SMEs rose at the fastest rate for ten years, adding to the pressure on firms. Investment in buildings and plant and machinery continues to be reined back.
Hugh Morgan Williams, chairman of the CBI's SME Council, said: "Smaller manufacturers are facing extremely challenging trading conditions. Unit costs rising at their fastest for a decade means margins continue to be under serious pressure.
"These storm signals send a sharp message to both the Government and the Bank of England Monetary Policy Committee that further deterioration is probable unless corrective action is taken."