By Daniel Hunter
Over one in four (28%) UK businesses — equivalent to 480,000 firms — are considering cutting costs to cater for the rising costs of raw materials, according to research commissioned by NIG, the commercial insurer.
Larger firms are being hit harder, with nearly half (46%) of those with an annual turnover of over £20m actively looking to offset rising raw material costs by making reductions in other areas of the business.
Significantly, 6% of businesses in the UK, equivalent to 109,000 firms, admit that the rising prices of raw materials means that they might not be adequately insured against theft given the extra, unaccounted costs to replace stock. The same number (6%) also admit that they might not be adequately insured against damage such as fire or flooding.
The research reveals that 16% of all SMEs in the UK are also considering altering business processes or products as a way of dealing with the upward trend of raw material prices. This proportion rises for businesses that have an annual turnover of more than £20m to 24% — equivalent to around 4,000 firms.
“UK businesses continue to face a very challenging economic environment and a key aspect of this for many firms has been the rising cost of the materials they use to build their products," Jon Greenwood, Managing Director at NIG, said.
"The consequence is that adjustments are being made in other parts of their businesses to counter these cost pressures.”
UK manufacturers are particularly affected, according to the research. While one in four (25%) retailers are considering reducing their costs to cater for rising raw material costs, over two-fifths (43%) of manufactures are doing the same.
The research reveals large disparities across the country. While only 6% of businesses in East Anglia say they are considering cutting costs to cope with the rising price of raw materials, this rises to 20% in the Midlands, 28% in the South and 37% in the North. The North West is the most affected region, however, with 52% of firms looking to find savings to address the issue of rising costs.
“UK businesses have worked extremely hard during the past five years with many focusing on primary challenges such as maintaining growth and keeping customers happy," Jonathan Greenwood, Managing Director at NIG, said.
"However, raw material increases have begun to impact many firms and there is a clear need for UK businesses to consider how this might have effected their insurance requirements and cover.
“Firms concerned about the issue of raw materials costs should consult their insurance broker as there are ways of mitigating the issue of rising costs. Many can provide information and advice about how businesses can be better protected, especially how to protect premises and stock; they can also arrange for a risk assessment to be carried out by the insurance company, which can help identify potential issues. This is especially the case if increasing raw material prices mean firms have inadequate cover for damage or theft.”
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