Business conditions for the UK's SMEs stabilised over the past quarter as new orders edged higher and optimism rose about the outlook for exports, according to new research.
The latest CBI Quartlery SME trends survey of 441 firms found that 23 per cent of SME manufacturers felt more optimistic in the three months to April, while 18 per cent were less positive in their outlook.
Twenty-six per cent said output was up, while 24 per cent said it was down. A balance of 17 per cent of companies expected output to rise again in the next quarter.
Almost a third (30 per cent) said domestic orders were up, while 24 per cent reported a drop. Firms expected domestic demand to strengthen slightly in the next three months.
However, there was an overall drop in export orders. Seventeen per cent of firms reported a rise, while 24 per cent said overseas orders had declined.
Nevertheless, a balance of 23 per cent anticipated that export orders will grow in the coming quarter.
A balance of 11 per cent were more optimistic about the prospects for exports in the year ahead, marking the second consecutive quarter of improving sentiment.
The proportion of SME manufacturers citing concerns about political and economic conditions abroad as likely to limit export orders was broadly unchanged compared to the last quarter at 32 per cent, but remained above its long-run average (22 per cent).
Average export prices fell in the three months to April, but at a slightly slower pace than in the previous quarter. Export prices are expected to be broadly stable in the next quarter.
Thirty-one per cent of SME manufacturers said they were employing more people than three months ago and 16 per cent were employing fewer.
A balance of five per cent planned to increase capital spending on plant and machinery in the year ahead, although investment in building is expected to continue falling.
Investment in product and process innovation is expected to rise at a steady pace, as is spending on training and re-training with balance of 26 per cent planning an increase, well above the survey's long-run average of 13 per cent.
Rain Newton-Smith, CBI director for economics, said: "Higher spending on training is often a sign that skills shortages are biting again. This further underlines the need for business and government to work together in the coming months and make sure we get the design of the Apprenticeship Levy right, so it can deliver the quality skills training that firms need.
"While the depreciation of the pound since mid-2015 will be welcomed by exporters, the Government could and should do more to help by establishing an exports commission that can look at the challenges and opportunities for exporters more closely."