Small manufacturers cutting workforces

By Kylie MacLellan

LONDON (Reuters) - Small and medium-sized manufacturers in Britain have cut staff for the first time in 18 months, according to a report on Monday, and more than a quarter plan to reduce headcount further as the global economy slows.

The quarterly survey, produced by the Confederation of British Industry (CBI), found a net balance of 13 percent of small and medium-sized businesses reduced their workforce in the three months to October, the biggest quarterly fall in five years.

A net balance of 27 percent said they planned to make further job cuts in the next three months.

"Given the speed at which the downturn has hit every sector of the economy it is not surprising that small and medium-sized businesses are also seeing orders and output hit - both at home and abroad - despite the relief provided by falling commodity prices," said Russel Griggs, chairman of the CBI's SME Council.

The survey found that both domestic and export orders contracted in the three months to October despite the depreciation of sterling, with the volume of total new orders falling at their steepest rate since January 1999.

The British economy shrank for the first time in 16 years in the third quarter and many economists expect further contraction through next year before only a small recovery in 2010.

The Bank of England made a shock 1.5 percentage point cut in interest rates last week, reducing them to 3 percent, their lowest level since the 1950s. But small companies said they were in desperate need of prolonged and sustained rate cuts if there were going to survive.

The government has put heavy pressure on banks to pass on lower interest rates to borrowers, particularly small businesses who had been hard hit by the credit crunch.

Six percent of small and medium-sized firms surveyed by the CBI said access to credit or finance was likely to limit their output in the coming quarter, and one in 10 said it was would limit export orders. Small and medium-sized companies, defined as those that employ less than 500 people, are the UK's biggest employers, representing more than half of the private-sector workforce.

(Editing by Ron Askew)