Heating and Ventilating

During the third quarter of 2008, UK manufacturers saw electricity prices rise by 23% in comparison to the previous quarter.
The Q3 rise means electricity prices have now increased by 243% since the same time last year, according to BDO Stoy Hayward’s quarterly manufacturing energy tracker.

Tom Lawton, head of manufacturing at BDO Stoy Hayward, 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 during 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,” said Lawton.

While electricity prices rose and the the UK economic climate took a turn for the worse, oil and gas price falls may offer small comfort to manufacturers. In Q3, the first fall in oil prices for 22 quarters (since Q2, 2007), occurred. Year on year the price of oil fell by 12% in Q3, when compared to Q2. While oil prices might be coming down, they are still 49% higher than the same period last year.

Q3 also saw gas prices remaining static, falling by 2%, since the previous quarter. This is the first fall since Q2 2007. However, when compared to the previous year, the price UK manufacturers paid for gas increased by 95%.

Lawton added: “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'.