UK manufacturers squeezed by soaring energy costs
The impact of soaring energy bills on UK manufacturers was laid bare today in a survey showing another month of job losses and heavy cost cutting.
Operating margins were squeezed as the rate of input price inflation picked up sharply to a 13-month high on the back of the increased cost of fuel and other commodities such as metals, chemicals and plastics.
The spiralling costs and lack of demand from abroad saw factory unemployment increase for the eleventh month in a row as companies sought cost savings from improved efficiency, according to the study by the Chartered Institute of Purchasing and Supply (CIPS).
It came as the CIPS barometer for activity in the manufacturing sector fell marginally from 51.8 in January to 51.7 last month, with any figure above 50 representing growth.
February was the seventh month in a row of expansion, but economists said the slower growth rate was “unexpected” and “disappointing”.
HSBC economist John Butler said: “For UK manufacturers, volume growth remains fragile while margins are being squeezed – still a nasty picture.”
The slower rate contrasted with strong increases in the eurozone, where the index was up from 53.5 in January to 54.5 in February.
Mr Butler said: “The industrial recovery in the eurozone appears to be gathering pace, while once again the UK seems to be missing out.
“The big difference between the UK and eurozone is that new orders in the eurozone are rising at their fastest pace since May 2004, while for UK manufacturers orders are slowing.”
JP Morgan economist Malcolm Barr said the figures added momentum to calls for a further cut in interest rates.
A figure of 65.7 on the CIPS index measuring input prices represented the fastest rate of inflation in costs since January last year.
Although selling prices at the factory gate also increased at the sharpest pace for a year, it remained well below that of input costs at 54.1.
And with the rate of growth for new orders easing due to a sluggish export market, a reading of 47.6 on the employment barometer signalled job cuts for the eleventh successive month.
Roy Ayliffe, director of professional practice at CIPS, said it was “another subdued performance” by the UK manufacturing sector, while Royal Bank of Scotland chief economist Dr Andrew McLaughlin branded it “uninspiring”.
“Although output growth was sustained, the continued lack of an upswing in export orders to support further expansion is placing too high a reliance on still relatively subdued domestic markets,” said Dr McLaughlin.
