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Business advisers BDO LLP say manufacturers facing calm before the storm

Manufacturers enjoy relative energy stability, but low carbon economy risks being a double-edged sword

Manufacturers are welcoming a period of relative stability in the supply of gas, electricity and oil, following a volatile quarter in which commodity price changes added a further pressure on manufacturers who are still recovering from the economic downturn.

The data – from the latest Quarterly Manufacturing Energy Tracker by accountants and business advisers BDO LLP – shows how prices have fluctuated from peaks (such as a high in demand for North Sea gas in January due to the cold winter weather, and a dramatic increase in the price of oil), to troughs (such as the price of electricity which is down 73 per cent from a September 2008 high).

Despite a relative calming of electricity and gas prices, oil price trends are more complex. Although wholesale oil prices continue on a steady upward trend, they remain 40 per cent below their July 2008 peak. Recent hype about the record £1.20p/litre at the petrol pumps confuses several things – of which fluctuations in the price of crude oil – priced in $US – is only a small part. More significant are sterling’s fall against the dollar, roughly 22 per cent since July 2008, and the Treasury’s tax take.

In addition, a wave of legislative challenges are hitting the industry, such as the EU Energy Trading Scheme and the Carbon Reduction Commitment (CRC). The legislation is aimed at changing the way industry and consumers use fuel and energy as the UK moves towards a low carbon economy, but many businesses are confused, with some claiming they do not even know how to start planning for the move to a low carbon economy.

The CRC – which went live on 1 April, with a deadline for registration of September 2010 – is now a board level discussion for many manufacturers, particularly as failure to register will incur expensive financial penalties.

Tom Lawton, Head of Manufacturing, at BDO LLP commented:

"Manufacturing is a high user of energy and is always impacted by pricing and supply pressures and the stakes are particularly high at this stage, as the sector is still smarting from the economic turmoil. As a result, the onus is on the Government to provide clarity of guidance and where help can be obtained. Complex schemes (even if very worthy) which are rushed out and not properly explained do not create a sense of purpose for the sector.

"While legislation such as the Carbon Reduction Commitment is aimed in the right direction – and carbon reduction is imperative in the medium to long term – much more needs to be done by the Government to make the path clearer and easier to tread."

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