UK manufacturers are facing a ‘perfect storm’ crisis with rapidly rising costs and massive debt that many believe could push them to the brink, according to a new survey.
The industry’s leading trade body on Monday urged the government to introduce payment holidays on loans, warning that thousands of companies were facing a “tipping point” that could make their business models unsustainable.
Make UK said Britain’s manufacturing sector was facing “an unprecedented combination of post-Covid credit, cash flow and cost crunch”. He said factories across the UK were grappling with the burden of paying off debts accumulated to get them through the pandemic as well as a range of other challenges ranging from supply chain disruption to shortages of electricity. heavy vehicle drivers and energy costs.
James Brougham, the organization’s senior economist, said: “The industry is facing the perfect storm… As the inflationary spiral shows all signs of a further rise, many companies fear a tipping point. which could make their business models unsustainable.
Professional body and accounting firm RSM said its survey of more than 200 corporate finance directors found that nearly half (48%) had struggled to fulfill orders amid the crisis in the supply chain. supply is intensifying.
The collapse of the UK supply chain, much of which is Brexit-linked, is causing gaps on retail shelves and price hikes, and has sparked warnings of potential shortages of everything from Christmas trees to party alcohol.
Buyers have already faced shortages of a range of items. Supermarkets have used cardboard cutouts of fruits, vegetables and other groceries to fill shelf gaps, while big brands such as the Walkers crisper company 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.
UK manufacturing has suffered its worst recession in over 30 years, with many companies taking on huge debt 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 have used the various government support programs including the Coronavirus Business Interruption Loan Program, Bounce Loan Program, and the Covid Business Finance Facility, although these are all now closed. Another government program, the Recovery Loan Scheme, is currently open to businesses of all sizes, but its eligibility and generosity will be reduced from January.
The new survey indicated that the manufacturing sector was facing an “acute inflationary spiral” that threatened to reach a level that would be disastrous for some companies. At the same time, many businesses are also facing a cash shortage as customers and suppliers cling to cash or change their payment terms.
In response to difficult business conditions and heightened levels of risk, almost four in 10 companies (38%) said they had used or intended to use restructuring, turnaround or recovery professionals. insolvency.
Make UK urged ministers to consider introducing payment holidays for loans taken out by companies as a precautionary measure to provide them with a vital respite.
Mike Thornton, Head of Manufacturing at RSM, said: “Manufacturers face a variety of headwinds, including staff shortages, supply chain disruptions, skyrocketing energy prices and rising energy prices. of the debt burden after Covid. ” Swiftly implementing plans to address these issues will be crucial to ensuring that businesses emerge after the pandemic in a strong and viable position, he added.
A government spokesperson said: “We are committed to supporting businesses as they grow and recover from the pandemic – our payback loan program is available to those looking to secure financing. 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 off Covid loans as they recover, and the introduction of the super-deduction – the biggest tax cut on companies over two years in modern British history. ”