UK manufacturing insolvencies rise 63% in one year | Manufacturing sector

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Bankruptcies in the manufacturing sector have climbed 63% since last year ahead of a wave of business bankruptcies expected this winter in response to rising energy prices, rising interest rates and the drop in order books.

The number of businesses going bankrupt has risen from 893 in 2020-21 to 1,454 in 2021-22, according to insolvency service figures analyzed by accounting firm Mazars.

Many other companies are likely to have voluntarily liquidated their companies before running out of credit and becoming insolvent.

Manufacturing groups have warned that thousands of businesses are on the edge of a financial cliff after dealing with the pandemic, Brexit trade restrictions and, more recently, skills shortages and rising wage bills.

Some businesses’ energy bills are expected to rise by 300-400% in October, when many fixed-price deals are renegotiated.

Make UK, the manufacturing lobby group, said many of its members were struggling to cope with the extra costs of doing business and needed the government to act quickly to stop them from going under.

Annette Dolan, managing director of Bath Aqua Glass, said the bill to run its glass-making furnaces was set to rise in October from £14,000 to £131,000 a year.

Speaking on the BBC’s Today programme, Dolan said she was doing “drastic planning” every night to try to ensure her 17 staff still had a place to work a year from now.

“If you told me during Covid that after Covid you’re going to have an energy bill £100,000 more than you’re paying now, I’d say don’t be silly, that’s never going to happen.”

“Uncertainty is the most terrible thing, and uncertainty for the country,” she added.

Mazars said UK manufacturers were struggling to cope with supply chain disruptions as well as inflation, rising interest rates and labor shortages.

Inflation has seen input costs for manufacturers rise significantly, with business energy costs rising by an average of 250% in the first quarter of this year compared to the same quarter in 2021, according to analysts at Cornwall Insight.

Rising interest rates mean that already struggling companies face an increase in the cost of their debt, pushing them into insolvency, said Julien Irving, partner at Mazars.

The Bank of England raised its key rate to 1.75% in August in an attempt to control inflation.

Irving said, “The level of inflation we are currently seeing can be deadly for manufacturers, especially energy costs. Many are inevitably energy-intensive, and such increases in energy prices can have a crippling effect on their ability to operate, especially if that cost cannot be passed on to their customers.

“Rising interest rates also make it harder for companies to cope with spiraling debt costs,” he added.

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