Concerns among UK manufacturers over a growing skills shortages is highlighting the need for government to adopt a new immigration policy that would allow firms to bring in the foreign talent they need, the Confederation of British Industry (CBI) said.Publishing its quarterly SME Trends Survey, the CBI said growth among Britain’s small and medium-sized manufacturers had picked up healthily in the three months to January, with a further acceleration expected in the next quarter.

Manufacturing labour skills shortages

But the survey of almost 350 firms found that concerns over skill shortages have “ramped up”, with the number of firms citing skilled labour shortages as a factor likely to limit output, rising to its highest level since January 1989.Alpesh Paleja, CBI principal economist, said, “Concerns over skill shortages have rocketed, stoking capacity pressures further. This underlies the importance of establishing a future immigration system that provides companies with access to talent and labour.“The building blocks of a new system that meets economic needs and public concerns must start with scrapping the net migration target, which has never been fit for purpose.“Growth is going strong for SME manufacturers, who are reaping the benefits of a lower pound and buoyant global growth – as seen in record expectations for export orders growth. But margins are clearly still under pressure, with cost pressures high, and firms expect to raise prices further to regain some ground.”

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Increasingly optimistic outlook in the UK

Nevertheless, the survey found that optimism improved at the fastest pace since April 2014 and export optimism improved at the fastest pace on record, reflected in the quickest rise in total new orders since April 1995.The CBI added, “Total orders growth is expected to pick up further over the next three months, with similar growth in domestic orders expected alongside a sharp acceleration in export orders. As a result, another firm rise in output is also predicted, with expectations for growth also the strongest on record.“Investment intentions also improved, with firms now expecting to increase spending on plant and machinery modestly – the first time that investment intentions have been positive in almost two years.”

Manufacturing growth slows

The Markit/CIPS purchasing managers’ index for UK manufacturing was also published on Thursday and showed a reading of 55.3 last month, below analysts’ expectations and down from 56.2 in December.Rob Dobson, director at IHS Markit, said, “The UK manufacturing sector reported an unwelcome combination of slower growth and rising prices at the start of 2018.“Encouragingly, despite the slowdown, the latest survey is consistent with production rising at a solid quarterly rate of around 0.6 per cent in January, with jobs also being added at a faster pace.“However, output growth has slowed sharply since last November’s high, and the more forward-looking new orders index has slipped to a seven-month low.“The trend in demand will need to strengthen in the near-term to prevent further growth momentum being lost in the coming months.”

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Read more about the future of UK business in the Winter issue of our magazine 

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