Business confidence among UK’s SME manufacturers has fallen sharply, as output and the volume of new orders declined in the three months to October 2022, according to the CBI’s latest SME trends survey.

The findings, based on the responses of 262 small and medium sized manufacturing firms, reveals the scale of the challenges facing the UK’s SME manufacturing sector, with business optimism now having fallen for four consecutive quarters.

Firms reported a reduction in both new orders and output volumes over the past quarter and anticipate a further drop in output in the next three months. Level of orders was the most commonly cited factor likely to impact output over the coming quarter, but concerns over access to skills also continue to weigh heavily.

The survey suggests that both cost growth and price growth eased a little over the three months to October but remained exceptionally high by long-term standards. SMEs expect similarly strong rates of cost and price growth in the next three months.

The weaker outlook is reflected in firms’ hiring and investment plans. Although the number of people employed increased in the quarter to October, the rise was the slowest since April 2021 – with a further modest increase expected next quarter. SMEs have also scaled back capital spending plans, with investment in buildings and new plant & machinery expected to fall over the year ahead, compared with the previous 12 months.

Ben Jones, CBI lead economist, said: “SMEs face continued challenges in the form of skills shortages, high costs and shrinking order books, which are weighing heavily on investment plans. Firms need decisive action from government to calm markets, help support small businesses through a difficult few months ahead, and build confidence in a rapid economic recovery.

“This should include much-needed reforms to business rates and the Apprenticeship Levy. That will encourage renewed investment and create the flexibility needed to future-proof the UK’s workforce.”

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