How is inflation affecting UK manufacturing companies?

Margaret Thatcher has received much of the blame for the decline in manufacturing within the UK, with the industry's share of the economy falling from 25.8% to 22.5% during her time in Office. Under Tony Blair's leadership, however, it dropped almost three times as much: from just over 20% in 1997, to 12.4% in 2007.

That's not to say that Labour didn't try to shake off the trend, and in May of this year, UK manufacturing output rose by 4.3%. David Kern, Chief Economist at the British Chambers of Commerce (BCC) believes the increase confirms that manufacturing recovery is back on the right track.

Ian McCafferty, chief Economic Advisor for the Confederation of British Industry (CBI), said: "Manufacturing appears to be on an upward trend. After eight consecutive quarters of falling domestic orders, home-grown demand is slowly starting to recover."

With this kind of encouragement for the rise of the manufacturing industry, it's surprising to see how badly it has been hit by business inflation increases. Costs for manufacturing businesses have risen by nearly 3% between January and March 2010, and by 7.6% over the past year.

McCafferty stated that profit margins for UK manufacturing companies are coming under greater pressure because of the increased inflation costs. This was noted by the Business Inflation Guide (BIG), which suggested that small businesses are being forced to raise the price of their products to cover overheads. The need to raise prices, however, lowers the ability to compete with larger companies, which can afford to charge less.

David Kern said that while UK manufacturing is now in positive territory, it must be better supported and given greater access to finance if it is to stay that way. During their election campaign the Conservatives stated that they would support high-tech industries, make business start-ups easier, and cut regulation. The word 'manufacturing', however, was rarely mentioned in their manifesto.

So will the talk of rebalancing ever be more than just talk?

The rise of companies such as Fab Labs, which allow everyone from children to entrepreneurs to bring their inventions to life, suggest growing support for the revival of the manufacturing industry. Fab Labs allow new businesses to build their product or prototype within Britain, and hire out the whole centre in order to create it.

Neville Reyner, president of the British Chambers of Commerce, believes that confidence in UK manufacturing is increasing, but that we need to work harder to become an exporting nation. You can watch Smarta's video interview with Neville here.

There have been recent attempts by the government to encourage an increase in British manufacturers, such as Peter Mandelson's decision to launch a £150 million package to help take advantage of new technologies. Only time will tell if this can help these businesses compete with Chinese counterparts, which are able to sell their products at significantly lower prices.

With such a mix of opinions, it can seem like there are no opportunities for small businesses in the manufacturing industry. In reality it all depends on whether the coalition government continue to encourage both the development of the industry, and the consumer's decision to buy British goods.

What are your opinions about the state of Britain's manufacturing industry? Should we be working so hard to return to the 'Golden Age'? Or should we finally let it disappear? Perhaps we should just focus less on where goods themselves are manufactured, and more on encouraging product development and design within Britain. Could this be the answer to rebalancing our economy?

If you work in manufacturing, do you feel the government is doing enough to help your business? Give us your opinions below!

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