SME's performing strongly in first quarter 2007

UK small and medium sized enterprises continued to perform strongly in the first quarter of 2007 with the rate of growth picking up slightly on the previous quarter, according to the PKF SME Index, a quarterly survey of 800 SMEs in the construction, manufacturing and service sectors.

Business output up across all sectors

Business output across all sectors rose from 55.8 in Q4 2006 to 56.0 this quarter while new business orders were down slightly on the last quarter at 55.2 from 55.7 in Q4 (marks above 50 indicate expansion and below 50 indicate contraction). Of the three survey sectors, manufacturers had the most marked increase in output for three years at 56.0, while business activity for construction companies was the most marked since Q4 2003. The service sector also continued to record robust levels of business activity and new orders at 55.4 and 55.0 respectively.

The reasons given by respondents for continuing growth include increased customer demand and new orders, seasonality and more effective marketing. In the construction sector improving weather conditions were beginning to be cited as an important factor while in the service sector the end of the tax year was said to be significant.

Strongest growth in Scotland

Regionally, Scotland was the best performing UK region in Q1, with the activity growth rate the strongest since Q4 1999. The Midlands also performed well recording the sharpest increase in activity for almost three years, while Wales and the South West remained robust in Q1 2007 following a particularly strong Q4 2006.

Output charge inflation was the highest reported since Q4 2004 as SMEs attempted to counter higher input costs. Anecdotal evidence from the manufacturing sector pointed to the continuing rise in prices for raw materials as the reason behind the charges, while the service sector found it was a result of higher wage bills from salary increases.

Employment growth - sharpest increase in 9 years

Employment growth in Q1 was the sharpest increase seen in nine years. All sectors added to their payrolls and the rate of expansion was in line with the national average for firms of all sizes. Regionally, Eastern England recorded the strongest rate of expansion seen since data was first collected in Q1 1998 and SMEs in Wales and the South West also reported a robust increase.

PKF partner for growing business, Stuart Barnsdall, commenting on this quarter's survey results said: "SMEs across the UK continue to perform robustly, but ever-increasing costs of raw materials are forcing businesses to put up their prices. There have already been a number of recent interest rate rises and with inflationary pressure still building, the Bank of England will almost certainly raise them again and therefore such robust growth is likely to be restrained in the coming months."