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July 11, 2014

High cost of materials threatens UK manufacturing

High cost of materials threatens UK manufacturingThe UK manufacturing sector is approaching what has been described as “the end of an era”, with commodity price volatility higher than at any other time in the past 100 years.

According to a new report by manufacturers’ organisation, EEF, the government needs to act now over escalating risks to the UK's supply of essential materials.

The report, Materials for Manufacturing: Safeguarding Supply, finds that average resource prices have doubled since 2000 and that 75% of EU manufacturers have seen material costs increase since 2000. Around 40% of manufacturers' operational costs are material costs. At the same time, demand for materials is expected to rocket.

In 2010, the EU deemed 14 materials to have supply risks. This has now increased to 20, all of which play a key role in manufacturing, says EEF. China is the leading producer of 22 out of 38 elements of strategic economic value to the UK.

According to the EEF, competitor countries are responding to the risk but the UK is in danger of being left behind. It says that the global growth in middle-class consumers, increased demand for commodities and an over-reliance on China for strategic supplies is leaving the UK vulnerable.

Susanne Baker, EEF senior policy advisor, said: “As we approach the end of an economic era we cannot afford to be left underprepared and overexposed. Manufacturers have sounded the alarm over the growing risks to material supply. But while competitor nations are already taking evasive action, our government is in danger of burying its head in the sand.”

Resource security is complex, Baker added. “It requires a flexible response working in close cooperation with industry and other stakeholders. But key to this must be a joined-up, thought-through approach across relevant policy areas. There is clear case for a new Office of Resource Management to act as a central hub of expertise, data and stakeholder liaison and to co-ordinate the UK's response to these risks.”

In other manufacturing news this week, figures from the ONS show that manufacturing output in May 2014 was down 1.3% on the month but up 3.7% on the year. David Kern, chief economist at the British Chambers of Commerce (BCC), commented: “Manufacturing output is still more than 7% below pre-recession levels. This reinforces the arguments for the MPC to delay increases in interest rates until it becomes absolutely necessary.”

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