SMEs are facing 'stagflation', survey warns

Fears of stagflation, where sluggish economic growth coincides with rising inflation, will set economic warning bells ringing, when a new survey from skills charity Enginuity is released, the charity warn.

Nearly 80% of Small and Medium Enterprises (SMEs) in the UK are under pressure to increase prices due to escalating costs of labour and raw material, the snapshot has revealed. For the first time since the regular survey was launched, almost three-quarters of SMEs, plan to offset these rising costs by passing them on to customers.

In another blow to the government’s growth ambitions, two-thirds of SMEs are not operating at full capacity for the second consecutive year.

With the Milburn Commission due to report on tackling the issue of more than a million young people who are not in education, employment or training (NEET), and the government extending work experience and skills training to 14 to 16-year-olds alongside curriculum reforms and new vocational qualifications, skills appear to be higher on the political agenda than ever.

Enginuity, a charity helping to close the skills gap, calculates that the UK’s engineering and manufacturing sectors have failed to optimise production and are losing out on around £5.2 billion of revenue per year, due to skills-related challenges.

Less than 40% of respondents reported confidence in the next three to five years, although financial constraints remain the most significant barrier to investing in skills development.

Ann Watson MBE, CEO of Enginuity, believes that the survey shows just how SMEs are being restricted in terms of achieving their full potential.

“SMEs are telling us that they are at their limit and cannot hold back prices any longer whilst at the same time, they are not able to achieve maximum production.

“The Chancellor needs to take heed as he prepares for the budget – and find a way of ensuring that small and medium sized enterprises, which make up more than 90% of the manufacturing sector, can afford to take on extra personnel.

“Likewise, with employer confidence in recruitment persistently lagging their confidence in training, Alan Milburn’s final recommendations must consider what is holding employers back from recruiting if they are to succeed in creating more opportunities for young people.

“We have already highlighted that skills-related challenges cost the engineering and manufacturing sector £5.2 billion a year.

“Reducing skills-related challenges is imperative if we are to have a fighting chance of improving economic growth in this country.”

The report also highlights a disconnect between policy initiatives and their impact on SMEs, with almost two thirds of SMEs not fully understanding the available government support for skills, while only 10% believe the new apprenticeship units will effectively address current skills gaps. The survey encompassed more than 200 companies across the manufacturing and engineering sectors.

Earlier this year, Enginuity launched the first Vocational Celebration Day, to help celebrate skills, create icons and promote parity of esteem for those on vocational pathways to work.