UK manufacturers are facing the perfect storm of escalating costs and soaring debt, which many fear could push them to the brink, according to a new survey.
On Monday, a major industry and trade organization urged governments to introduce a loan repayment grace period, warning thousands of businesses that they are facing a turning point that could render their business models unfeasible.
Make UK says the UK manufacturing sector is facing an unprecedented combination of credit, cash and cost crunches since the coronavirus. British factories are grappling with problems ranging from debt repayment burdens and supply chain disruptions to a shortage of HGV drivers and energy costs to overcome the pandemic, he said.
James Brougham, the organization’s chief economist, said: The industry is facing a complete storm. Given that the inflation spiral continues to show signs of rising, many companies fear a tipping point that could render their business models unfeasible.
RSM, a trade organization and accounting firm, surveyed more than 200 corporate finance directors and found that nearly half (48%) are struggling to fulfill orders as the supply chain crisis deepens.
A supply chain collapse in the UK, mostly Brexit-related, has created voids on retailer shelves, prices are rising, and has sparked warnings that everything from Christmas trees to festive alcohols will likely run out.
Shoppers have already had to deal with a shortage of various items. Supermarkets are using cardboard pieces of fruit, vegetables and other groceries to fill gaps on their shelves, and big brands like chip company Walkers and stores like McDonald’s and Nandos have also been affected. Meanwhile, the global shortage of computer chips has caused problems for several industries.
The UK manufacturing industry has suffered its worst recession in more than 30 years, and many companies are in a lot of debt to survive. A closely watched survey found that two-thirds (65%) of businesses said a cash shortage was hampering their growth plans.
Many manufacturing companies have used various government-backed schemes, including the coronavirus business shutdown loan scheme, return loan scheme, and Covid corporate finance facilities, but all are now closed. Another government program, the Recovery Loan Scheme, is currently open to businesses of all sizes, but has reduced eligibility and generosity starting in January.
Manufacturing is facing a turbulent inflationary vortex that is on the verge of reaching catastrophic levels for some businesses, new research shows. At the same time, many companies are facing liquidity pressures as customers and suppliers obsess over cash or change payment terms.
In response to difficult trading conditions and increased risk levels, nearly four in 10 (38%) said they have used or plan to use restructuring, turnaround or insolvency experts.
Make UK has urged ministers to consider introducing paid leave to lenders, which lenders have taken as a precaution to provide critical breathing space.
Mike Thornton, RSM’s Head of Manufacturing, said: Since COVID-19, manufacturers are facing a variety of headwinds, including workforce shortages, supply chain disruptions, soaring energy prices, and rising debt burdens. He adds that quickly implementing plans to address these issues is critical to ensuring that businesses are in a strong, actionable position post-pandemic.
A government spokesperson said: We are committed to supporting businesses growing and recovering from the pandemic. Our recovery loan plans are available to those looking to secure additional funds and maintain a generous 80% government guarantee to give lenders the confidence to continue their loans. . This is in addition to the introduction of Pay as You Grow, the largest two-year business tax cut in modern UK history, which gives businesses the time to recoup their COVID-19 loans for up to 10 years.
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