UK manufacturing & engineering SMEs keen to invest but being held back by impact of inflation

The cost-of-living crisis has been covered extensively in the media but what has been less comprehensively reported is the rising cost of doing business. The latest independent research* from Close Brothers Asset Finance and Leasing sheds more light on the impact mounting costs are having on Manufacturing & Engineering businesses.

A recent survey of manufacturing & engineering UK small and medium-sized enterprises (SMEs) says that in spite of the multiple pressures facing them, the appetite for borrowing to invest in growth is the strongest it’s been since we started surveying business owners, with 78% (UK average: 67%) of Manufacturing & Engineering respondents answering ‘yes’ to the question ‘does your business plan to seek funding for business investment in the next 12 months’.

While investment intent is strong, some 45% (UK average: 40%) of manufacturing & engineering firms have missed a business opportunity in the past 12 months due to a lack of available finance. In addition, confidence in the economy has cooled, with 51% (UK average: 54%) of construction firms concerned about further economic slow-down. 

Impact of inflation

According to our research, 58% of manufacturing & engineering businesses have been negatively impacted by rising inflation, while 39% feel the Bank of England’s target of 2% is realistic in today’s high-inflation business environment (UK average: 33%). A further 45% don’t feel raising interest rates is the right thing to do to help curb inflation (40% ‘yes’; 15% ‘unsure’).

While businesses have been asked not to raise wages, 63% of manufacturing & engineering operators will be doing just that as they try to help their employees keep up with rising costs.

In addition, four-fifths of manufacturing & engineering firms plan to pass additional costs onto customers (29% ‘fully’; 52% ‘partially’) while the remaining 19% have chosen to absorb the costs, which will, in turn, have an impact on their cash flow. Four in 10 admitted the increased cost of doing business has caused them cashflow issues

“Businesses have, for some time now, borne the brunt of both rising costs and inflation along with supply chain problems that have made it difficult to plan – both finances and stock – while trying to meet customer demands, said Steve Gee, CEO of Close Brothers Asset Finance’s Industrial Equipment Division. “But it’s encouraging to see that firms are still keen to invest despite all the challenges they are facing.”

Methodology

All figures, unless otherwise stated, are from a Census-wide survey conducted in July 2022. The survey canvassed the opinion of 911 SME owners across the UK and Ireland and across several industries on a range of issues affecting their businesses.