Growth among smaller and medium-sized (SME) manufacturers remained positive in the three months to July, but exports dragged down overall performance, according research
The latest CBI SME Trends Survey of 408 companies reported steady growth in new domestic orders over the quarter and a rise in output in line with expectations. Business optimism also improved a little further in the three months to July.
But new export orders fell, having been broadly flat for the previous two quarters. Export prices continued their downward trend, falling at the fastest pace since October 2003, and are widely expected to limit export orders in the next quarter.
Looking ahead, growth in output and total and domestic orders is expected to gather pace, whereas exports look set to fall again in the three months to October.
More jobs were added in the three months to July, and employment growth is projected to continue through to October.
Anna Leach, CBI Head of Economic Analysis, said: “Optimism among smaller manufacturers improved this quarter, alongside steady employment growth, rising output and new domestic orders.
“But the relative strength of the Pound against the Euro is hitting export orders and margins. This, alongside uncertainty regarding Greece, threatens growth prospects in the Eurozone.”
Meanwhile, bank lending to businesses is set to grow in 2015 for the first time in seven years, a report said today.
The EY Item Club forecast for financial services said at the start of the financial crisis in 2008 lending to firms peaked at £575billion, but has dropped every year since then.
The report said growth this year will be marginal at just 0.25% compared to last year, but the figure is expected to continue rising over the next four years up to 25% higher than 2014 levels.
Lending in the second half of this year needs to be just 3% higher than in the same period a year ago for business lending figures to grow overall this year, it added.
Gross lending for the first half of this year is up 19% to £103.4billion on a year ago, and is expected to pick up further, the report said.
In the first five months of this year net lending also grew, though it plummeted in June as large corporations paid off debt.
But the report added that due to the recovering UK economy “June’s figures don’t dash hopes that business lending will rise overall in 2015”.
Omar Ali, EY UK head of banking and capital markets, said: “Consumer credit finally turned the corner in 2014, and now business lending will hopefully follow suit.
“The rising demand from businesses for new loans is good news for the banks, but the June drop in net lending shows how vulnerable they are to bigger businesses, with access to alternative sources of finance such as bonds, paying off overdrafts in preparation for rising interest rates.”
The survey said mortgage lending is forecast to rise modestly over the next four years, at an annual average rate of 3.8%.
This is broadly in line with growth in household incomes and will be boosted by rising house prices and continued low interest rates.
Although this rate is double the average rate between 2010 and 2014, it remains weaker than typical EY ITEM Club forecasts, and significantly lower than the average annual 6% growth that followed the early 1990s recession.
Andrew Goodwin, senior economic advisor to the EY ITEM Club forecast for financial services, said: “With homeowners set for the sixth year running of historically-low borrowing costs, the demand for mortgages should continue to grow healthily, albeit at a far from spectacular pace.
“But while a low interest rate environment is good news for consumers, the prospect of a further year of squeezed interest margins is not what the banks were hoping for.”