SENTIMENT among small and medium-sized manufacturers fell for the third quarter running in the three months to January, as output stagnated and orders fell against a backdrop of heightened economic and political uncertainty, the CBI said today.

Of the 350 respondents to the CBI’s latest quarterly SME Trends Survey, 26% said output rose while 25% said that it fell, and the resulting balance of +1% marks the first time that output has not risen since April 2010.

Production is expected to remain broadly flat (a balance of +3%) in the coming three months.

Domestic orders fell for a balance of -17% of firms and export orders fell for the second quarter running (-10%), both at the fastest rates since October 2009 (-19% and -13% respectively).

In the next three months, firms expect domestic demand to fall further (-7%) but predict export orders will stabilise (-1%).

Concern over political and economic conditions abroad have risen sharply in the latest survey.

33% of firms believed that this would limit export orders in the next three months, the highest proportion since October 2008 (33%) and well above its long-run average (21%).

Fragile conditions in the manufacturing sector continued to weigh on confidence.

Sentiment about the general business situation fell for the third quarter in a row, with a balance of -20% of firms less optimistic than they were three months ago.

Lucy Armstrong, chair of the CBI’s SME Council, said: “Sentiment among small and medium-sized manufacturers fell sharply again in the past three months, brought down by rising concerns about the ongoing eurozone crisis, which has led to falling orders and stagnant output.

“While figures for the next three months point to some stabilisation, the manufacturing sector is still facing significant headwinds, which can only add to existing uncertainty over demand and growth.”