Upturn in SME service and manufacturing sectors

The festive Christmas season helped to reinvigorate the UK growing business sector during the last quarter of the year according to the PKF SME Index, a quarterly survey of 800 SMEs in the construction, manufacturing and service sectors. The construction sector was busy on year end completions; manufacturers enjoyed the strong demand for Christmas orders from retailers and the Ministry of Defence; and the service sector cited the "Christmas festive mood" and the end of year rush to spend annual budgets.

The gap in performance between UK companies as a whole and SME companies also narrowed during the last quarter. While the growth rates for UK companies is consistently higher than for the SME sector, the gap narrowed from 2.2 for business output in Q3 to just 0.9 in Q4 and from 3.3 for new business orders in Q3 to 1.5 in Q4.

The output of SME construction companies continued to grow but was down to 54.6 from 60.7 in Q3 (where marks above 50 indicate expansion and marks below 50 indicate contraction). Respondents cited the year end expenditure cycle as the main reason for increased activity but several also mentioned that they were marketing themselves better and improving their success rate for winning tenders.

Service sector output was up to 55.2, the highest score for five quarters as was the level of new orders which was up to 55.3. The sector also benefited from the rush to spend any remaining budget before the year end and customers' willingness to give the green light for new projects.

SME manufacturers continued to show a small increase in output growth (up to 52.9 from 51.1) and new business orders (up to 52.3 from 50.4) on last quarter. Most respondents cited seasonality as the main reason for the uplift but others benefited from orders from the Ministry of Defence, a better than expected Christmas for retailers, and customers ordering early to beat the new year price increases.

Across the UK, the strongest output growth was recorded by London & the South East which rose from 53.7 in Q3 to 55.7. This was clearly helped by the London retail sector which enjoyed its best Christmas for at least three years – contrary to gloomy forecasts. The worst performing region for output was the East at 50.7 which fell from 52.6 in Q3.

55.7 in Q4. Scottish SMEs recorded the lowest level of new orders – down from 55.1 in Q3 to 50.4.

Employment prospects across the board continued to flatline at 50.7 although the construction sector is still recruiting (54.4). Manufacturing employment continued its downward trend (48.0) for the fourth consecutive quarter although some survey respondents recruited staff over the Christmas period on short term contracts to cope with the rush. The service sector's recruitment prospects are cautiously optimistic (51.9) but many are still adopting a policy of natural wastage