Tens of thousands of businesses in the UK are at risk of failure owing to high energy prices, according to a consulting firm.
Red Flag Alert, which self-describes itself as the UK’s “number one insolvency scorecard,” said tens of thousands of businesses may fail next year and those who survive will have to choose between paying energy bills and wages, calling on the government to make it a priority to support businesses.
It comes as new Prime Minister Liz Truss vowed to “take action this week to deal with energy bills” as she moved into No 10 Downing Street on Tuesday.
Among the 355,000 high-energy-consuming companies with a turnover of higher than £1 million ($1.15 million), one in five (75,972) is at risk of insolvency, with 26,720 expected to fail, beginning next year, according to Red Flag Alert’s estimate. This is on top of the 26,000 insolvencies the firm predicted this year.
The firm also said it would cost £100 billion ($115 billion) a year to prevent the mass failure of smaller energy-intensive businesses.
Other small businesses such as retail and hospitality are also said to be at risk.
While the UK’s economy was estimated to have shrunk by 0.1 percent in the second quarter, the labour market has so far remained buoyant, with the employment rate between April and June remaining stable compared to the previous quarter.
But Red Flag Alert chief economist Nicola Headlam told the BBC that unemployment may soon rise as a result of higher costs.
“Businesses can’t absorb these costs and they’re going to be forced very quickly into a decision about headcount or being able to pay energy bills,” she said. “That’s going to be the reality and it’s coming down the track very quickly.”
According to the latest S&P Global/CIPS construction purchasing managers’ index (PMI) published on Tuesday, the construction sector, one of the energy-intensive industries, contracted for the second month in a row in August.
Andrew Harker, economics director at S&P Global Market Intelligence, said the sector “looks set to be in for a challenging period” as “a range of indicators from the survey pointed to further weakness ahead.”
Meanwhile, the manufacturing sector reported monthly output of 42.4 in August, representing the sharpest slump for more than two years.
Firms reported “reduced customer demand, the delayed delivery of inputs, and labour shortages” for the month.
Trade organisation Make UK said on Tuesday that almost 60 percent of manufacturers who responded to its survey said increased energy costs are now “business threatening.”
PA Media contributed to this report.