Small manufacturing businesses hit hardest by rising costs

The UK's small businesses have suffered a 6.6 per cent annual hike in costs, three times higher than the government's inflationary target, according to the latest quarterly Business Inflation Guide (BIG) from MORE TH>N BUSINESS. 

The latest BIG figures reveal a 2.1 per cent increase in costs during the second quarter of 2011, exceeding the government's targeted annual inflation rate of 2 per cent. However, Britain's manufacturing and transport small businesses are under particular pressure, as the prices of raw materials and fuel continue to rise rapidly, increasing by 5.29 and 4.68 per cent respectively in 2011 Q2.  Less able to take advantage of slowing export markets than big players, small manufacturing businesses are in danger of being squeezed between rising costs and decreasing opportunities for growth.  

Businesses with between 10-50 employees have been hard hit by revisions to business rates and increased water service charges, pushing property-related overheads up by nearly 18 per cent in the three months since April.  With this summer's energy price hikes yet to fully impact small businesses, these overheads are likely to continue rising into 2012.  

Meanwhile, Scotland's services-focused SME industry is experiencing a more subdued rate of inflation and feeling less pressure from changing international markets due to their minimal reliance on imports and exports. Costs for SMEs in Scotland rose just 1.8 per cent in 2011 Q2 and 5.5 over the year, well below the national average for the rest of the UK. 

Mike Bowman, Head of MORE TH>N BUSINESS, said: "The unstable international market conditions have led to dramatic peaks in commodity and energy prices, which are putting real pressure on the UK's small businesses. Rising overheads mean that many small businesses will have trouble making any real margin.  Implementing robust contingency plans to maintain margins and cash flow in the face of unexpected costs hikes or lulls in business is now more essential than ever. Don't let your business be squeezed to the point of no return."

Stephen Roper, Professor of Enterprise at Warwick Business School, who conducted the research, added: "Slow-growing markets and worries of a double-dip recession are likely to deter investment and put small businesses in a difficult position. With the rate of inflation of small businesses unlikely to slow down over the next six to nine months, there is a risk that, unless business can expand or attract new investment, they may not be able to cover the rising costs of maintaining their properties, vehicles and workforce."