Rising production costs causing UK job losses

By Chris Mercer

- Last updated on GMT

Related tags Cost

Manufacturers in Britain are cutting more and more jobs as rising
raw material costs and difficulties passing these on through the
supply chain continue to squeeze profit margins, says a new report.

Around 25,000 jobs have been cut across Britain's manufacturing industry, including food, over the last three months, according to new figures from the Confederation of British Industry (CBI).

It said that meant 106,000 job losses in the last year "as employers sought to counter the rapidly-rising costs and stagnant prices by seeking greater efficiency and productivity"​.

The news follows a report by Britain's National Office of Statistics last week, which said manufacturers in Britain were facing the biggest squeeze in input and output prices for almost 30 years.

It said this was because all industries had failed to pass on soaring oil and gas prices to customers.

Around 23 per cent of manufacturers reported an increase in costs in the last quarter, according to CBI figures, compared to 20 per cent and 13 per cent in the two previous quarters respectively.

Food and drink producers were among those who cited big cost increases. Dairy processor Arla UK, a subsidiary of Scandinavian firm Arla Foods, said prices for its main packaging material, HDPE resin, had risen 30 per cent since July to more than £850 per tonne.

The group added that diesel fuel costs were likely to be up £2m this year, while it expected gas and electricity bills to be 40 or 50 per cent higher for the same units it used last year.

Arla predicted Tuesday that a delay in passing on the increased costs would damage its first-half figures, even though sales had been in-line with expectations since the end of November.

Sir David Naish, Arla UK chairman, said in December the group was seeking to increase selling prices to "reflect the realities of substantially increased packaging and fuel costs"​. The group recently also announced the closure of its Sheffield Park dairy, near London.

There has been some good news, however. Britain's Milk Development Council said this week that all major UK supermarkets had increased retail milk prices by 2.2p per litre.

And, more generally, another report published this week by Standard and Poor's predicted that consumer goods companies, including food processors, would succeed in passing on higher input costs.

It also said cost-cutting measures would continue to absorb the impact. "Although the actual cost increase may be significant and the ability to pass this on to customers remains very limited in Europe, cost-reduction efforts already being implemented should offset most of the negative effects."

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