Energy bill increases of up to 40 per cent are set to hit Midland manufacturers even harder at a time when margins are already under enormous pressure, Sir Digby Jones has warned.

The CBI director-general was speaking after new research from the UK's largest energy analyst, Inenco, revealed soaring costs are impacting upon all elements of industry.

Sir Digby said: "The UK manufacturing sector is already under significant pressure and for those sectors facing very slim profit margins, the ability to absorb recent increases in energy and other commodity prices is constrained.

" CBI members have reported significant increases in their energy costs over the past year-and-a-half and, in particular, in the October contract round - where businesses were reporting a rise in quoted energy prices of between 30 and 40 per cent on average."

Sir Digby said the price increase was not only affecting energy-intensive business sectors such as steel, glass, ceramics, paper, cement, chemicals and aluminium.

He said: "It is also affecting smaller, less energy-intensive companies - for example, printing, plastics and engineering, and large multi-sided commercial companies, such as retailers."

Nigel Withey, managing director of Inenco, said companies now faced a new " double whammy" after the strict controls of the Kyoto Treaty came into force earlier this year.

He said: "Energy costs for gas, electricity and oil will continue to rise and, on top of this, companies face the additional double whammy of greater investment to meet the new regulations of the Kyoto Protocol.

"Many company boardrooms think all they have to do to reduce their energy bills is to get tough with their suppliers. But it's not as simple as that."

Inenco has launched a campaign calling on managers of Midland businesses both large and small to rethink their procurement strategies and for energy to be a higher priority on the boardroom agenda.

This follows the company's latest research showing the scale of energy price hikes had caught many businesses unaware. The analyst also cautioned that the impact was being further compounded by its knock-on effect on the costs of other input materials.

Inenco's data highlights how individual companies are seeking to manage exposure in a number of ways - switching to wholesale purchasing, buying directly from the energy markets through specialist brokers and exploring different contracts, such as floating price and interruptible deals.

Mr Withey said: " The energy sector has changed radically in recent years, with many financial players now involved, bringing stronger parallels with the traditional commodities market and, therefore, more susceptible to price volatility.

"Senior executives who ignore these trends do so at their peril.

"Energy purchasing and the effective management of its use are intrinsic elements of risk management.

"And it takes more than turning off the odd light or PC to achieve lasting results."