Small businesses still facing credit 'headache'

Smaller firms are still struggling to obtain credit even though demand for goods is improving, according to research today.

The CBI said production in small and medium sized enterprises (SMEs) had stabilised and the relative weakness of sterling led to a better than expected rise in exports.

More than a third of manufacturers said orders had increased in the three months to April but access to credit was still a "headache" and increasing prices of raw materials were squeezing profits, the survey said.

Russel Griggs, chairman of the CBI's SME council, said: "The UK's smaller manufacturers are finally reaping the benefits of all their hard work as well as a relatively weak currency. Exports are growing steadily, domestic demand and production are stabilising, and firms are feeling more upbeat about prospects.

"With demand expected to grow in the coming months, manufacturers are thinking about taking on extra staff over the next three months.

"However, firms are experiencing a sharp rise in raw material costs which is squeezing profit margins. But they do expect to recoup some of this by raising prices over the next quarter. It is also still a concern that access to credit remains a headache for some firms."

There was little change in the number of staff employed, after six quarters of job cuts, with most firms expecting to marginally increase staff numbers in the next few months, the study of 400 businesses found.