Optimism among SME manufacturing firms has grown at the fastest pace in seven years with output forecast to improve markedly in the coming quarter.

The CBI's quarterly SME Trends Survey found output held flat in the three months to April ahead of the predicted rise, despite export orders remaining flat ahead of a predicted decline.

The survey of 280 firms revealed a rise in the volume of new orders while employment numbers those across the last three months for the first time in two years.

Expected output and orders over the next quarter put growth predictions at the strongest since the survey started in 1988.

CBI lead economist Alpesh Paleja said: "SME manufacturers are poised for strong growth and are sunnier in their outlook, consistent with the overall picture for the economy.

"But not all is rosy - companies clearly remain under the cosh with cost pressures mounting and raw materials shortages persisting thanks to Covid-related supply chain disruption."

The survey found investment intentions for the year ahead are improved with capital expenditure plans for plant and machinery turning positive for the first time since mid-2018.

Investment plans for training also improved while those for product and process innovation reached the strongest level since October 1996.

Inflationary pressure appears to be building with average costs rising at the fastest pace in 10 years with domestic and export prices growth also picking up.

Rising costs are in part linked to continued shortages of raw materials.

The proportion of manufacturers citing materials or components as a factor likely to limit output over the next three months rose to the highest on record.