Increases to the minimum wage and employer national insurance in April could create the perfect storm for firms already feeling the pinch.
January was another tough month for the manufacturing sector as output, new orders and employment all fell.
And companies hit by higher costs can see little light at the end of the tunnel with payroll taxes and the minimum wage due to rise within two months.
“Business optimism remains close to December’s two-year low, while input price inflation is at a two-year high,” said Rob Dobson, a director at S&P Global Market Intelligence.
“A stagnant economy and rising cost burdens leave policymakers with a real dilemma, balancing the need for rate cuts to support flagging growth and a declining labour market against the need to contain inflationary pressures.”
The latest survey data from S&P paints a bleak picture for firms battling through the traditionally quiet post-Christmas period.
There was a slight easing in the pace of contraction as the S&P Global Purchasing Managers’ Index (PMI) for manufacturing rose to 48.3 in January from 47.0 in December.
But the PMI survey showed firms were hit with the strongest purchase price inflation in two years last month, pushed up by the costs of raw material and transportation.
“We are acutely aware of the cost pressures faced by the majority of firms across the manufacturing sector and paying over the odds for their energy is the last thing they need right now,” said Callum Thompson, CEO of Business Energy Claims.
“Whether you’re a small business looking to grow or a large firm seeking to grow your margins this is a tough time to be in manufacturing. We’d love to help.”