Findings from the latest SME Confidence Tracker survey show many are at breaking point, with 74% stating the current economic landscape is worse than the pandemic and just one in ten (10%) fully prepared to deal with further cost rises expected.
Derek Ryan, UK Managing Director of Bibby Financial Services, said: “Two years ago, we thought the Covid-19 pandemic and successive lockdowns were the greatest issue to hit businesses in a generation. However, SMEs are now telling us that the current economic climate is unsustainable. In the face of a near certain economic recession and spiralling costs, it’s life or death for many of the UK’s manufacturing SMEs.”
These findings come as record inflation and soaring energy bills – set to rise by 80% in October – pile pressure on the purse strings of businesses, and SMEs demand action from the UK’s new Prime Minister, Liz Truss.
The survey findings are stark; the current economic environment is significantly worse than the pandemic, to the extent that nearly half of small to medium sized manufacturing companies (47%) would prefer two more lockdowns to a further inflationary rise, and the majority (74%) are concerned that the economic climate is killing entrepreneurialism.
In addition, as inflation continues to squeeze margins, 45% of manufacturing businesses say they are cutting back on investment due to the cost of doing business, 40% are cutting costs overall, and 45% are passing higher costs to customers.
In what could be a significant blow to current levels of employment, 12% of SMEs in the manufacturing sector are making redundancies as part of their cost-cutting measures.
With inflation expected to climb, worryingly, only one in ten (10%) manufacturing businesses surveyed is fully prepared for inflation-related challenges. And SMEs in the industry predict further cost hikes could result in even higher costs for customers (69%), hiring, salary and promotion freezes (26%), and cuts to investment plans (23%). 15% will consider turning to short term lending.
Derek Ryan continued: “SMEs in the manufacturing sector demonstrated stoic resilience during the pandemic, in large part thanks to the Government’s intervention, and the provision of loans, grants and furlough payments. But now they are on the brink of an even greater crisis without a lifeline.
“While the new Government’s announcement that it is committed to supporting SMEs overcome these challenges is a positive sign, right now, all small manufacturing companies have is a placeholder. It remains to be seen whether the detail of the Government’s package will be sufficient.
If it isn’t, many viable businesses will be lost. And, if we don’t protect these businesses now, the UK’s economy could take many years to recover.”
The survey makes plain the type of assistance SMEs in the manufacturing sector feel would be most effective. Increasing tax relief options is a favourite choice selected by 42% of respondents. This is closely followed by providing an extension to the VAT cut (40%) and offering affordable financial support (36%). In addition, 28% of manufacturing firms would like to see an increase in the allowance for energy grants.
