Insolvencies among manufacturers jump 63% in a year

Phil Black - PII Editor 30/08/2022

451 2 minutes read

Inflation and interest rate rises piling pressure on manufacturers
Many are also struggling with supply chain issues and labour shortages

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Insolvencies in the UK manufacturing sector have jumped 63% from 893 in 2020-21 to 1,454 in 2021-22* says Mazars, the international audit, tax and advisory firm.

Mazars says UK manufacturers are struggling to cope with inflation and rising interest rates, as well as supply chain disruption and labour shortages.

Inflation has seen input costs for manufacturers increase significantly, with business energy costs rising by an average of 250%** in the first quarter of this year compared to the same quarter in 2021.

Interest rate hikes mean that already struggling businesses are facing unsustainable rises in the cost of their debt, pushing them to insolvency. The Bank of England raised its base rate to 1.75% in August in a bid to control inflation.

Julien Irving, Partner at Mazars says: “The level of inflation we’re seeing at the moment can be lethal for manufacturers, especially energy costs. Many are unavoidably energy-intensive and such steep rises in energy prices can have a crippling effect on their ability to operate, especially if that cost cannot be passed on to their customers.”

“Rising interest rates are also making it harder for businesses to keep up with the spiralling costs of their debts.”

Manufacturers are also facing severe disruptions to their supply chains because of the war in Ukraine and sanctions imposed on Russia. Not only are businesses struggling to get their hands on materials, but they are also paying inflated prices for them. “

Many companies are also starting to suffer from cashflow problems as their customers cut orders or struggle to pay their bills. Research suggests that 440,000 small businesses could be forced to close this year due to late payments alone***.

Rebecca Dacre, Partner at Mazars says: “Current economic conditions are creating a domino effect of rising insolvencies. Manufacturers receiving fewer orders are placing fewer orders with their suppliers in turn, often leading to those in a weaker financial position going under.

Businesses in the manufacturing industry are also bearing the brunt of a labour shortage caused by Brexit and the pandemic. These businesses are finding they need to raise wages or invest in technological solutions such as automation – but cannot afford to, given current financial conditions.”

Manufacturing subsectors facing surges in insolvencies

Manufacturing Insolvencies	2020-21	2021-22	% Change
Sector Total	893	1454	62.8%
Manufacture of beverages	20	39	95%
Manufacture of chemicals and chemical products	9	17	88.9%
Manufacture of furniture	58	101	74.1%
Manufacture of food products	61	99	62.3%
Manufacture of motor vehicles, trailers and semi-trailers	29	41	41.4%