The final quarter of 2008 saw manufacturers' electricity costs at a staggering 51 per cent higher level than Q4 2007, according to BDO Stoy Hayward's Quarterly Manufacturing Energy Tracker. In addition, the Tracker has revealed that gas prices have risen by one fifth (21 percent) year-on-year.
However, the massive upwards trend through 2008 was reversed in Q4 with the cost of electricity reducing by 27 per cent from the high cost points of Q3 2008 but gas prices reduced by less than one percent compared with Q3 – presumably bolstered in part by the winter demand.
Tom Lawton, Head of Manufacturing at BDO Stoy Hayward, said: “Although the trend of these important costs has made a welcome shift downwards in the last quarter the scale of the increases on an annual basis will have undoubtedly caused major problems to many manufacturers in what is a very difficult economy.
The current gas crisis between the Ukraine and Russia is unlikely to help the situation.
“Approximately three per cent of the UK's gas supplies are sourced from Russia. If the Ukraine and Russia are unable to quickly resolve this current dispute over gas supplies the end result will be further price rises as demand outstrips supply,” points out Lawton.
Is there a silver lining?
Another key element in manufacturers' cost base is oil, and following the explosion in costs during 2008, the final quarter saw a huge shift downwards in the price of Brent Crude. On average during the quarter, oil prices were at $52 a barrel in comparison to $112 in Q3 2008 and $91.70 in Q4 2007. There is no doubt that this fall will have come as a welcome relief to the UK's manufacturers,” noted Lawton.
“We hope that these important costs to manufacturers continue the downward trends through 2009 to at least provide some assistance to manufacturers in managing through this crisis. Unfortunately we do see that the crisis will have a major impact on the numbers of manufacturing insolvencies this year and in 2010 as a result of the current economic climate,” warns Lawton.