Barometer records rise in pressure on SME manufacturers

This quarter’s findings found businesses negatively impacted by lead time changes (85 per cent), energy costs (83 per cent), availability of suitably skilled staff (77 per cent), the ability to pass on rising costs to customers (75 per cent), and inflation (92 per cent).

In a statement, Nick Golding, managing director at South West Manufacturing Advisory Service (SWMAS), said: “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.”

Over a quarter (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, which 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 reduced with 13 per cent now agreeing this is possible, and 75 per cent saying they are unable to pass on price changes.

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 51 per cent said there was something preventing them from bringing the product(s) to market.

Golding said: “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. 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.

Golding added: “These issues are well documented, but reiterate the challenges that SME manufacturers are currently facing. 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.”