Exclusive: Energy crunch to squeeze UK industry
UK manufacturing is set to swallow a £20bn-plus bill from soaring energy costs this year, heaping further pressure on Britain’s weakening economic recovery, reveals exclusive research shared with City A.M.
Surging oil and gas prices will pile an extra £8.7bn on to factories’ energy costs in 2022, crimping their already squeezed margins.
Swelling energy bills will intensify inflationary pressures already threatening to throw the UK’s economic recovery off course.
Fresh inflation figures will be published on Wednesday and are expected to come in at 5.5 per cent – even hotter than December’s near 30-year high.
Goods produced by industrial firms are widely used across the economy, meaning if factories lift prices, other businesses are likely to follow suit, with the bill eventually falling on households – which are already grappling with Ofgem’s 54 per cent hike in the consumer cap this spring.
So far, British manufacturers have been largely unexposed to oil and gas price spikes due to them buying energy supplies 12-to-24 months in advance.
However, inventories earmarked for later this year will have been negotiated at prices that are likely to be as much as five times higher than they were in 2020.
Chris Bowden, founder and chief executive of Squeaky, the firm that calculated the figures, told City A.M. businesses will be whacked by rising energy costs.
“This is going to start biting during this year and next year, and we’ll see more and more comments coming from financial officers and chief executives saying energy prices are going to impact 21-22 and 22-23 results,” he warned.
Both Cornwall Insight and Energy UK, two leading consultancies in the energy sector, have recently warned high gas prices could be baked into the market for years.
Although the industrial sector is able to pass higher costs on to customers due to its output being essential to other businesses, high street retailers and hospitality firms have less room to do so due to the highly competitive nature of their markets.
Energy bills for the UK’s commercial sector will jump nearly £5bn this year, Squeaky said.
These businesses will struggle to lift prices and maintain demand and have been made vulnerable for lost revenues during the pandemic.
Mike Cherry, national chair of the Federation of Small Businesses, told City A.M. : “We’re hearing regularly from members who are being hit to the tune of thousands by new utility bills, and that’s against a backdrop of input, employment, and administration costs rising too.”