UK manufacturers say soaring energy costs may trigger job cuts

UK manufacturing firms say they’re likely to cut jobs and production due to a surge in energy costs, even though the government has extended support.

Make UK, the industry’s lobby group, flagged energy costs as the biggest concern of its members in a survey of 235 companies in November. Almost two thirds of employers said they were concerned about the risk of blackouts, according to the research done with the consulting firm PwC.

Chancellor of the Exchequer Jeremy Hunt this week is due to confirm how much the government will cut its energy aid for companies, which the Treasury says is “unsustainably expensive”. Make UK’s warning indicates the scale of pain manufacturers are suffering with soaring inflation and a darkening outlook for the economy.

“The biggest risk remains the eye watering increases in energy costs which has left the clock ticking for many companies,” Stephen Phipson, chief executive officer at Make UK, said on Monday (Jan 9). “While an extension of the energy relief scheme will be welcome, to date it has just been a sticking plaster. Making it less generous will make the situation worse for many companies.”

While natural gas and electricity prices have tumbled in recent weeks, the cost of gas in Europe and Asia remains five times higher than in the US and than in pre-pandemic times.

Most companies surveyed don’t expect the measures due to be announced will be sufficient to protect their profits.

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The government’s Energy Bill Relief Scheme provided some “breathing room” for six months. The Treasury last week signalled that the programme will be scaled back from April.

Early reports indicate that government support for businesses on energy will fall by around 85 per cent from current levels, piling further pressure onto manufacturers at a time when supply chain disruptions, labour shortages and high borrowing costs are crippling firms.

“We face another 12 months where it’s likely that global supply chains will remain stretched and a string of pressure points will continue to spring up,” added Cara Haffey, manufacturing leader at PwC UK. “Given the scale of the cost challenges, and the backdrop of a long winter, it is imperative that the right balance is struck.” BLOOMBERG