Business

Britain’s factories face bleakest winter since the 1970s

Frog, a British manufacturer of children’s bikes, enjoyed continuous sales growth until the pandemic, expanding into 50 international markets since it was founded in 2013. This year, however, its energy costs have leaped 333%.

Co-founder Jerry Lawson says the company, which is based in Ascot, has lifted its prices by 14% and is trying to find savings. “We are looking at headcount too,” adds Lawson, who employs about 90 people.

The UK’s manufacturing industry is hurting. The latest purchasing managers’ index, published Thursday, confirmed the steepest contraction in production since the depths of the Covid-19 lockdown in May 2020.

“Companies experienced a sharp reversal in new orders, with demand from domestic and overseas clients contracting sharply,” the report from S&P Global and the Chartered Institute of Procurement and Supply said.

A weak pound, which has sunk to $1.16 from $1.37 back in January, doesn’t appear to be helping factories sell more goods abroad. A separate survey published last week from the Institute of Chartered Accountants in England and Wales said exports growth in the current quarter “has been weaker” than domestic sales, blaming “Brexit-related frictions, such as red tape and transport delays.”

Trade barriers, soaring energy costs, a looming recession and widespread strikes have raised the specter of the 1970s, a decade that arguably epitomized the decline of British manufacturing.

Blackouts

In another echo, blackouts could also return, with the government preparing for a shortage of energy even if it fires up emergency coal plants.

Any shutdowns would pose a serious risk to industries that depend on a constant supply of energy. Turning off kilns — used to make bricks, tiles and pottery — “can take up to two weeks” according to Rob Flello, chief executive officer of the British Ceramic Confederation. He says that any shutdown would “need to be handled in a coordinated and timely manner, with close cooperation” between the government and the industry.

It is far from the only sector with this problem. Glass furnaces “cannot be turned off,” says Dave Dalton, head of British Glass. “The damage that can occur within a few hours of gas being disconnected will lead to furnaces being lost,” he warns.

Final trigger

Britain’s energy price cap applies to households, not businesses, so companies have no protection from rocketing global prices. Some factories have already succumbed to the pressure; earlier in the summer a banknote-printing business, which had been split off from London-listed De La Rue Plc in 2018, said it would close its plant in Overton, Hampshire, at a reported loss of 300 jobs.

“The final trigger was that their energy price contracts expired,” explains Steve Freeman from the Confederation of Paper Industries. “They just can’t pass the extra costs on. So that was the final nail in their coffin.”

For now, the government says its priority is to ensure “supplies of energy are maintained,” with a spokesperson adding that ministers and officials hold continuous talks with industry.

Nonetheless, the UK’s new prime minister, due to be announced at the start of next week, is expected to deliver a wider support package to help individuals and businesses survive a winter of historically high energy prices. The country’s factories will hope to be near the front of the queue.

© 2022 Bloomberg


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