Its latest quarterly SME Trends Survey of 373 manufacturers found that total new orders growth was at a three-year high and output growth was at its highest for six years.
Sentiment among SMEs is upbeat, CBI said. Optimism about the business situation rose at its fastest pace in almost three years, with export optimism climbing at a record rate.
However, the weak pound is continuing to stoke inflationary pressure. SME manufacturers reported the strongest rises in unit costs and prices in six years.
In addition, investment plans for the year ahead deteriorated.
Alpesh Paleja, CBI principal economist, said: "The UK’s SME manufacturers have hit a purple patch, with strong domestic and export demand driving a firm rise in output.
“But costs and prices have continued to climb, with little sign of let up over the next quarter. This is putting considerable pressure on manufacturers’ margins, and so we’re likely to see further pass-through to consumer prices ahead.”
