The final quarter of 2008 saw manufacturers’ electricity costs rise by more than half according to research by BDO Stoy Hayward.
According to the company’s Quarterly Manufacturing Energy Tracker, electricity costs rose by 51 per cent while gas prices rose by 21 per cent year on year.
However, the massive upwards trend through 2008 was reversed in quarter four with the cost of electricity reducing by 27 per cent from the high cost points of quarter three but gas prices reduced by less than one percent compared with quarter three – presumably bolstered in part by the winter demand.
Tom Lawton, head of manufacturing at BDO Stoy Hayward, said: “Although the trend of these important costs has made a welcome shift downwards in the last quarter the scale of the increases on an annual basis will have undoubtedly caused major problems to many manufacturers in what is a very difficult economy.”
The current gas crisis between the Ukraine and Russia is unlikely to help the situation, he added.
“Approximately three per cent of the UK’s gas supplies are sourced from Russia. If the Ukraine and Russia are unable to quickly resolve this current dispute over gas supplies the end result will be further price rises as demand outstrips supply,” said Mr Lawton.
Another key element in manufacturers’ cost base is oil, and following the explosion in costs during 2008, the final quarter saw a huge shift downwards in the price of Brent Crude. On average during the quarter, oil prices were at $52 a barrel in comparison to $112 in the third quarter of last year and $91.70 in the final quarter of 2007. There is no doubt that this fall will have come as a welcome relief to the UK’s manufacturers,” he added.
“We hope that these important costs to manufacturers continue the downward trends through 2009 to at least provide some assistance to manufacturers in managing through this crisis. Unfortunately we do see that the crisis will have a major impact on the numbers of manufacturing insolvencies this year and in 2010 as a result of the current economic climate.”
The Russian and Ukrainian governments announced over the weekend a deal had been stuck to restart gas supplies through the Ukraine following months and disruptions over a dispute of payment between the two countries.
Vladimir Putin and Ukrainian Prime Minister Yulia Tymochenko announced the deal to settle the gas dispute after talks dragged into the small hours of Sunday.
Mr Putin said Ukraine would pay 20 per cent less than the European price for this year while Tymoshenko said natural gas supplies would resume once the two countries’ gas companies sign a contract.
The Ukrainian Prime Minister said Russia’s Gazprom and Ukraine’s Naftogaz had been told to prepare the documents by Monday.