‘Perfect storm’ for UK manufacturers as costs, credit and cash crunch looms

·3 min read
<span>Photograph: Jonathan Brady/PA</span>
Photograph: Jonathan Brady/PA

Britain’s manufacturers are facing a “perfect storm” crisis of rapidly rising costs and towering debts that many fear could push them over the brink, according to a new survey.

The leading industry trade body on Monday urged the government to introduce payment holidays on loans, warning that thousands of firms faced a “tipping point” that could make their business models unviable.

Make UK said the UK’s manufacturing sector was facing “an unprecedented combination of a post-Covid credit, cash and costs crunch”. It said the UK’s factories were struggling with the burden of repaying debts racked up to get them through the pandemic as well as grappling with a raft of other challenges from supply chain disruption to shortages of HGV drivers and energy costs.

James Brougham, the organisation’s senior economist, said: “Industry is facing the perfect storm … Given the inflationary spiral shows every sign of continuing to climb, many companies fear a tipping point that could make their business models unviable.”

The trade body and accountancy firm RSM said their survey of more than 200 company finance directors found almost half (48%) had had trouble fulfilling orders as the supply chain crisis intensifies.

Britain’s supply chain meltdown, much of which relates to Brexit, is leading to gaps on retailers’ shelves and price rises, and has prompted warnings of potential shortages of everything from Christmas trees to festive alcohol.

Shoppers have already had to deal with shortages of a range of items. Supermarkets have been using cardboard cutouts of fruit, vegetables and other groceries to fill gaps on shelves, while big brands such as crisps firm Walkers and outlets such as McDonald’s and Nando’s have also been affected. Meanwhile, a global shortage of computer chips has caused problems for a number of industries.

Britain’s manufacturing industry has endured its worst downturn for more than 30 years, with many companies taking on huge levels of debt in order to stay afloat. The closely watched survey found that two-thirds of companies (65%) said a lack of cash had hampered their growth plans.

Many manufacturing companies made use of the various government support schemes including the coronavirus business interruption loan scheme, the bounce-back loan scheme and the Covid corporate financing facility, though those have all now closed. Another government programme, the Recovery Loan Scheme, is currently open to businesses of any size, but will be scaled back in eligibility and generosity from January.

The new survey indicated manufacturing was facing a “sharp inflationary spiral” which threatened to reach a level that would be disastrous for some firms. At the same time, many companies are also facing a liquidity squeeze as customers and suppliers cling on to cash or change their payment terms.

In response to the challenging trading conditions and increased levels of risk, almost four in 10 companies (38%) said they had used, or intended to use, restructuring, turnaround or insolvency professionals.

Make UK urged ministers to consider introducing payment holidays for the loans companies took out as a precautionary measure to provide them with vital breathing space.

Mike Thornton, head of manufacturing at RSM, said: “Manufacturers are facing a variety of headwinds, from staff shortages, supply chain disruption, soaring energy prices and an increased debt burden post-Covid.” Rapidly implementing plans to address these issues will be crucial to ensuring firms emerge post-pandemic in a strong viable position, he added.

A government spokesperson said: “We are committed to supporting business as they grow and recover from the pandemic – our Recovery Loan Scheme is available to those looking to secure further finance and maintains the generous 80% government guarantee to ensure lenders continue to have the confidence to lend. This is in addition to Pay as you Grow, which gives businesses up to 10 years to pay back Covid loans as they recover, and the introduction of the super-deduction – the biggest two-year business tax cut in modern British history.”

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