Oil price rises in the last six months have cost UK businesses an additional £11.3 billion, according to the latest Industry Watch Report from a ccountants BDO Stoy Hayward.
World oil prices notched a record high of $75 a barrel in late April, due in part to fears of possible Western action against Iran.
Yesterday they slipped back to $69 but nevertheless in the last six months alone oil prices have increased by around $20 a barrel.
The beleaguered manufacturing sector has been worst affected, representing a fifth - £2.3 billion - of additional oilbased spending.
Profits for all manufacturing-based industries have been hit.
Worst off are the shipbuild-ing and repair industry, where the impact of higher oil prices will have pushed down profits by 59 per cent in the six months from last November, the metal casting industry, a 41 per cent drop, and oils and fats manufacturers - 40 per cent adrift.
The report says that as a consequence manufacturing business failures are set to increase, with 2,134 set to go out of business in 2006, up from 1,888 in 2005.
But it's not all doom and gloom for UK manufacturers, as improved domestic and export demand and a positive turn in the inventory cycle have given them some hope in recent weeks.
Furthermore, oil prices are expected to drop to an average $63 a barrel later this year before falling to $57 in 2007, as demand from the US and Asia cools and the impact of Hurricane Katrina begins to fade.
However, while price stabilisation will help reduce the number of future business failures compared to what we might have expected, it is set to be 2007 before the sector sees brighter times.
Also hit by record oil prices, BDO Stoy Hayward says, is the freight transport sector which suffered the highest additional oil-based spend between November and May, costing an extra £982 million.
However, profits have not been affected to the same extent, dented by just 18 per cent during the six months, and it is likely that the increased costs were passed directly on to consumers.
Kim Rayment, business restructuring partner at BDO Stoy Hayward in Birmingham, said: "UK industry's dependence on oil is well-known, but it is shocking to discover the huge sums of money that businesses must find when oil prices increase and the effect this has on profitability.
"Manufacturers have borne the brunt of oil price hikes, and ultimately, some have fallen by the wayside. A range of sectors are affected by energy costs and although oil prices are expected to stabilise in the next few months, businesses
need to be aware of the pressures caused by price fluctuations and implement contingency plans to deal with them.
"Recent reports of a slowdown in demand for crude and growing stockpiles in the OECD countries may have a short term downward impact but with continuing geopolitical uncertainty combined with the continued tightness in refining capacity, I expect prices to remain in the current range."