Britain’s smaller manufacturers are facing their worst cost pressures for more than 13 years, a survey has revealed.

The CBI said a balance of 62 per cent of small and medium-sized enterprises (SMEs) reported average unit costs had increased in the past three months, the highest reading since the survey started in April 1994.

This has resulted in firms raising the price of their goods to try to limit a significant squeeze on profit margins, the trade body said.

According to the CBI’s SME Quarterly Survey, a balance of 20 per cent of firms had raised domestic prices over the past three months, with 27 per cenet expecting prices to rise further in the coming three months.

The price pressure data backs up other recent wider economic surveys which show the annual cost of producers raw materials going up at record rates.

In a sign of the current tougher economic climate, more SME manufacturers reported falling orders over the past three months than rises for the first time since January 2006. A balance of 14 per cent of respondents reported declining order books, compared with three per cent reporting a rise in April.

And the gloomier business climate saw optimism about the overall business situation take a severe dent. A balance of 39 per cent reported worse outlook, a sharp increase on April’s 20 per cent figure.

Intentions to spend on research and development and training over the next 12 months have also flattened, the survey found.
Russel Griggs, chairman of the CBI’s SME Council, said: “Although pockets of stronger performance do exist in the manufacturing world, it is a real concern that orders and output have fallen and are set to fall again.

“There is no doubt this is a challenging time for many small and medium-sized firms. Many are trying to stay on top of higher energy and raw material costs, and are finding it difficult to pass these onto customers through higher prices.”

Small companies are defined as those employing fewer than 200 workers, with medium-sized having between 200 and 499 staff.