Higher energy bills force firms to chop jobs

More than 25,000 jobs have been cut across Britain's manufacturing industry over the last three month as employers tried to offset the impact of soaring energy costs, according to figures from the Confederation of British Industry.

The figures followed an Office of National Statistics report which said manufacturers were facing the biggest margin squeeze in 30 years.

Food manufacturers have been particularly badly hit by oil-related rises in transport, production and packaging costs, with Arla UK reporting a 30% rise in packaging material HDPE resin since July and predicting £2m in extra diesel costs this year. Meanwhile gas and electricity bills were likely to be 40 or 50% higher.

Northern Foods also reported "sharply higher" energy and other costs in the fourth quarter of 2005. It said that it was taking longer than expected to pass the higher costs on to its customers.

The engineering employers organisation the EEF said gas prices had risen 50-80% for firms contracting since last summer.

However, ratings agency Standard & Poor's said that heavy cost cutting meant that most of Europe's consumer goods firms should be able to offset the impact of rising costs.

"Although the actual cost increase may be significant and the ability to pass this on to consumers remains very limited in Europe, cost-reduction efforts already being implemented should offset most of the negative effects," it said.

Danone was fairly typical in claiming oil-related cost increases of 0.75% of sales, but profitability should improve thanks to changes in the sales mix and cost cutting, it added.