Region's SME manufacturers are struggling with inflation and price rises – South West Manufacturing Advisory Service

South West SME manufacturers are struggling with inflation and price rises, the South West Manufacturing Advisory Service has warned.

The organisation says its latest latest Manufacturing Barometer survey suggests supply chain price changes are negatively impacting the vast majority of UK SME manufacturers, and that half of all respondents said their profits had reduced in the last six months.

This quarter’s findings reveal that 92 per cent of firms are struggling with inflation. Also highlighted as having a negative impact on business were lead time changes (85 per cent), energy costs (83 per cent), availability of suitably skilled staff (77 per cent), and the ability to pass on rising costs to the customer (75 per cent).

“Profitability remains a challenge for most firms and is at a similar level to the previous quarter. This indicates trading conditions remain challenging for the manufacturing sector and despite companies keeping a positive outlook, this is not translating into the sales and profits in all cases,” said Nick Golding, managing director at SWMAS.

27 per cent of firms said they had increased their staff headcount in the last six months and 30 per cent had increased their investment in capital equipment. This is broadly in line with last quarter’s results and is at a historically low level for this Manufacturing Barometer.

In April 2022, 67 per cent predicted that cost changes could be passed to customers, but confidence levels have drastically reduced with only 13 per cent now agreeing this is possible, and 75 per cent saying they are unable to pass price changes on.

When asked how the current economic climate has affected total R&D budget for the next two to three years, only 17 per cent of respondents said it had increased. Despite this, 76 per cent of respondents said they have ideas for new products to be manufactured in the UK, but more than half (51 per cent) said there was something preventing them from bringing the product(s) to market.

“A significant number of firms are talking about survival, whilst some are talking about pivoting and pinning future growth prospects on new products or materials," said Nick.

"The challenges indicate they are looking for further investment to support their growth and expansion, however they are struggling with energy costs and increasing interest rates. Several firms are looking to reduce the level of borrowing which could also constrain future growth by limiting capital investment plans.”

Energy efficiency was the leading area triggering R&D investment, with 40 per cent of respondents increasing their investment in this area.

“These issues are well documented, but reiterate the challenges that SME manufacturers are currently facing," added Nick.

"The drop in future sales expectations is likely to be the key factor in constraining growth, which is further highlighted by most respondents reporting they are not expecting to see growth, but a decline in future sales. This is a substantial shift of more than 10 per cent of respondents since last quarter’s survey.

“In relation to the Growth Plan 2022 announced on 23 September, the majority of firms did not have confidence this was going to help their growth prospects.

"However, since our Manufacturing Barometer went live, we have experienced further political change, with many policies reversed and a new Prime Minister announcing new measures. It is clear from responses this quarter that many SME manufacturers would welcome further financial support to offset rising costs and help support growth plans.”

SWMAS runs its National Manufacturing Barometer on a quarterly basis. To see the full report for August to October, please visit www.swmas.co.uk/knowledge/national-2022-q2