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Smaller manufacturers are catching the first glimpse of an export-led recovery, according to figures published on Monday by the CBI.

Overseas orders are stabilising after seven quarters of decline and optimism about export prospects is at its highest level for 15 years.

But domestic orders are likely to remain depressed and companies expect output to fall in the next three months, according to the employers’ body’s quarterly survey of 418 businesses with fewer than 500 staff.

“With the economy only just edging out of recession, conditions will still feel pretty challenging for smaller firms,” said Russel Griggs, chairman of the CBI’s small and medium-sized enterprise council.

But he said it was encouraging that exports were stabilising, since smaller manufacturers were pinning their hopes on sterling’s relative weakness to boost overseas orders and offset weak demand at home.

Twenty-seven per cent of companies said the volume of export orders rose in the three months to January, while 25 per cent said it fell. The resulting balance of +2 was the strongest figure since January 2008.

Export orders were expected to grow more strongly in the next quarter by a balance of +8. A balance of +15 were optimistic about export prospects for this year, the highest since October 1995.

Domestic orders continued to decline, but at the slowest rate since April 2008, with 23 per cent reporting a rise during the past three months and 33 per cent a fall. A balance of -7 expected domestic orders to fall in the next quarter.

The volume of total new orders fell (a balance of -5), but at a lower rate than the previous quarter (-17).

Manufacturing production stabilised, thanks in part to the modest improvement in exports. Twenty-seven per cent of SMEs said output rose and 26 per cent said it fell. The resulting balance of +1 was above expectations.

But output was predicted to weaken in the coming months (a balance of -6) and total new orders were also expected to fall further (-4).

Optimism about general business prospects was positive, +2, but down from +9 in the previous quarter.

Almost 10 per cent of manufacturers reported that credit or finance constraints were likely to limit output or export orders in the next quarter.

Employers continued to reduce their headcount (a balance of -8), albeit at a slightly weaker rate than the previous quarter (-12).

Companies were continuing to de-stock but at a slower rate, and two-thirds were working below capacity.

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