The UK's small and medium-sized (SME) manufacturers faced the sharpest drop in optimism in the three months to April 2022 since the onset of the pandemic.

There was a weakining of new orders growth and a record-high growth in both costs and prices.

However, the employment picture looked more positive, with headcount growth picking up pace.

The latest CBI SME Trends survey, based on the responses of 234 SME manufacturing firms, found:

• Business optimism fell at the sharpest pace since the three months to April 2020 (-36 per cent from -7 per cent in January), with export optimism also falling sharply (-25 per cent from -9 per cent in January).
• Average unit costs grew at the fastest rate in survey history (+90 per cent from +76 per cent in January, data first collected October 1988), as did domestic prices (+60 per cent from +40 per cent in January).
• Total new orders rose at a slower pace in the three months to April compared with January (+22 per cent from +42 per cent). Firms expect broadly no growth in the next three months (+3 per cent)
• Output volumes grew at an above average rate in the three months to April, similar to January (balance of +16 per cent from +19 per cent), but growth is expected to slow in the coming three months (+10 per cent).
• The percentage of SME manufacturers believing that materials/components shortages will limit output in the next three months reached a survey record high in April (71 per cent from 49 per cent in January).
• Numbers employed picked up at a quicker rate than in the three months to January (+21 per cent compared to +13 per cent), with SMEs expecting this to improve again in the next three months (+26 per cent)
• Investment intentions for the year ahead weakened across the board compared to January: buildings (0 per cent from +8 per cent), plant and machinery (+17 per cent from +20 per cent) product & process innovation (+13 per cent from +24 per cent), training (+15 per cent from +25 per cent).

Ben Jones, CBI lead economist, said: "It is no surprise that SME manufacturers are feeling less optimistic this quarter. Growth in new orders is expected to come to a halt over the next three months, cost growth is historically strong and concerns over materials shortages continue to rise. This is leading to unprecedented price rises and a hit to investment plans.

"The Government must continue to keep a watchful eye on smaller firms. The extension of support for energy-intensive firms last week was a welcome first step for helping businesses through a difficult period, building greater resilience in the economy.

"But more could be done to help keep SMEs' investment plans on track, for example, introducing a permanent successor to the super deduction."