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Manufacturers face 'perfect storm' of rising costs and high levels of Covid debt amid fears businesses could become 'unviable'

This Is Money logo This Is Money 29/11/2021 Camilla Canocchi for
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Manufacturers are facing a 'perfect storm' of rising costs and high levels of debt, which many fear could push them over the brink, a new survey has found.

Industry body Make UK has called on the Government to introduce payment holidays for loans that companies took out during the pandemic as they face a 'tipping point' that could make their business 'unviable'.

On top of the increased debt burden, manufacturers are also facing lorry driver shortages, supply chain disruption and soaring energy prices, with the 'inflationary spiral' showing no sign of abating, Make UK warned. 

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The organisation's senior economist, James Brougham, said: 'Industry is facing the perfect storm with a raft of rapidly escalating costs combined with significant levels of debt which many companies took on as a precautionary measure just to stay afloat.

'Given the inflationary spiral shows every sign of continuing to climb, many companies fear a tipping point that could make their business models unviable.'

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A survey of more than 200 companies by Make UK and tax consultants RSM has found that nearly half of firms had struggled to fulfill orders as the supply chain crisis intensified.

It also found that the cash position of a similar proportion of firms was worse than at any point since the pandemic began.   

Manufacturers have been facing rising demand as the economy recovers, but their ability to meet that demand has been hampered by disrupted supply chains and mounting skills shortages. 

Brexit is partly responsible for the UK supply chain crisis, which has seen a raft of companies warn of the potential for a lack of products over Christmas. 

Last week, industry chiefs warned there will be smaller ranges of spirits and wine as well as fewer offers unless the Government tackles the supply chain crisis.

The Wine and Spirits Trade Association wrote to Transport Secretary Grant Shapps telling him companies are still struggling to get drinks to customers and urged ministers to 'ease the burden' caused by the HGV driver shortage.

Meanwhile, the British Retail Consortium had recently warned that despite a 'gargantuan effort to ensure that essential food and gifts are ready for Christmas', shops 'continue to be dogged by ongoing challenges (in) supply chain problems'. 

Mike Thornton, head of manufacturing at RSM added: 'Manufacturers are facing a variety of headwinds from staff shortages, supply chain disruption, soaring energy prices and an increased debt burden post-Covid.

'This backdrop has elevated the risk profile for many UK manufacturers. Considering the position today, rapidly implementing plans to address underperformance is going to be crucial to ensure manufacturers emerge post-pandemic in a strong viable position.' 


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