Manufacturing companies are facing a combination of major financial challenges as their sector and the wider economy recover from the worst of the coronavirus crisis.
According to a new report, businesses within the manufacturing sector are faced with an unprecedented “post-Covid credit, cash and costs crunch” as they approach 2022.
That report comes from the trade body Make UK, whose experts are concerned that there could soon be a “tipping point” and a significant increase in insolvencies and liquidations among British manufacturers.
“Industry is facing the perfect storm with a raft of rapidly escalating costs combined with significant levels of debt which many companies took on [during the Covid crisis] as a precautionary measure just to stay afloat,” explained James Brougham, Make UK’s senior economist.
“Given the inflationary spiral shows every sign of continuing to climb, many companies fear a tipping point that could make their business models unviable.”
Research carried out by Make UK and the consultancy firm RSM indicates that close to half of all manufacturers now have more debt than they did prior to the pandemic, with six out of 10 saying they are still planning to borrow further.
Roughly a third of manufacturers say they are concerned that their debt burdens could fundamentally threaten their financial viability within the next two years.
Already, four out of 10 manufacturing companies polled recently said they have or intend to seek support from restructuring, turnaround or insolvency professionals to help improve their circumstances and prospects.
In response to its own findings, Make UK has called for the government to consider offering payment holidays to manufacturers that are struggling to manage their debts.
Mr Brougham from Make UK has conceded that the government can do little to ease cost pressures in general but urged policymakers to think seriously about how they might be able to support businesses at risk of insolvency.
The government could potentially “take a softer approach to helping companies by looking again at the payment periods for their loans or introduce payment holidays,” he said.
“This could provide the vital breathing space which would enable companies to ride out the current storm into calmer waters,” he suggested.
