UK MANUFACTURERS FACE ELECTRICITY RISES OF 23 PERCENT DURING Q3

During the third quarter of 2008, UK manufacturers saw electricity prices rise by 23 per cent in comparison to the previous quarter, further adding to manufacturers’ economic woes, according to BDO’s Quarterly Manufacturing Energy Tracker.

The rise seen during Q3 has meant that electricity prices have now increased by an overwhelming 243 per cent since the same time last year.

Tom Lawton, Head of Manufacturing at BDO, said: “This is a staggering increase in a key element of the “fixed cost” base of many manufacturers.  There is no doubt that these cost increases will have taken a significant toll on manufacturers’ margins over the past year.  Although other energy costs look like they are now reducing electricity prices look as if they are set to increase - which is bad news for the sector.”

“The larger UK manufacturing companies are more likely to be able to absorb these increases and have the scale to develop other cost cutting measures to keep overall costs in some form of balance. But these options are often less open to mid tier manufacturers,” points out Lawton.

Oil and gas decreases may provide some relief

Interestingly, BDO’s Manufacturing Energy Tracker also identified that Q3 provided manufacturers with the first fall in oil prices for 22 quarters.  The price of oil fell by 12 per cent in Q3 when compared with Q2.

In addition, Q3 saw gas prices remaining relatively static, falling by a marginal two per cent since the previous quarter.  This is the first fall since Q2 2007.  However, year-on-year, the price UK manufacturers paid for gas increased by 95 per cent.

“While oil prices might be coming down, they are still 49 per cent higher than the same period last year.  However, manufacturers will not want to look a gift horse in the mouth, and this fall will have come as a welcome relief to many,” continues Lawton.  “Particularly, as the fall may go some way to easing increases in other energy costs and transportation costs.”

Lawton concludes, “UK manufacturers are entering a very difficult period and should establish close management of key costs, including energy costs, to ensure that all steps possible are taken to minimise costs and cost increases. The recent financial turmoil might have one beneficial effect in the overall reduction of energy prices – but there is still a lot to be gained by active and involved management.”

ENDS

For more information, please contact Dee Crooks at BDO on 020 7893 2761 / 07815 172 051 or email dee.crooks@bdo.co.uk

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