The Confederation of British Industry found manufacturing SMEs reported another strong quarter of orders and output growth in the three months to July, when numbers employed in the sector increased in the quarter at the fastest pace since records began in October 1988.
Katja Hall, deputy director-general of the employers organisation, said: "Smaller manufacturers are settling into a regular growth pattern, with their order books and output growing for the fourth consecutive quarter."
However, she added: "Export orders have underperformed this quarter, which may in part be because of the strength of Sterling."
The CBI said the findings of its SME Trends survey suggested firms' optimism about their general business situation rose in the latest quarter, but to a lesser extent than in the last quarter.
Confidence among businesses in the UK dropped for the first time in two years in the quarter to July but remains close to an all-time high, according to research by the Institute of Chartered Accountants in England and Wales and Grant Thornton accountants.
The institute said businesses appear to becoming more realistic with growth in the economy set to slow following a strong run.
Stephen Ibbotson, director of business at ICAEW, said: "The imbalances in our economic recovery that were masked by rising confidence continue to persist - our exports remain weak, and investment isn't maintaining momentum. We look to the Bank of England and the government to work harder to ensure that the recovery is placed on a broader footing."
Scott Barnes, chief executive of Grant Thornton, said: "Business confidence remains very positive, with growth still relatively strong and the private sector looking to create thousands of jobs."