Firms struggle with cost of oil

Small firms are losing their spark as oil and rates bite into profits

Small manufacturers in the UK are struggling in the face of soaring oil prices and higher interest rates, according to the CBI.

The pace of economic recovery for small to medium companies (SMEs) has slowed since the start of summer, it warned after questioning 700 firms.

Rising oil and commodity prices were blamed, with many firms finding it hard to pass on higher costs to customers.

Meanwhile, base rates have risen five times since November last year to 4.75%

'No let-up'

Smaller firms also cited a falling off of demand from overseas, in markets that were previously growing quickly, especially in the US.

"There is no let-up in cost pressures or in the strength of competition in the market, which both continue to squeeze margins," said Hugh Morgan Williams, chairman of the CBI's SME council.

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But is was not all bad news, despite the pause in economic recovery for some SMEs.

Business optimism was broadly unchanged from the last three months, the CBI said, and employment figures rose for the first time in more than six years.

And the number of firms working below capacity fell to 52%, the lowest level since October 1997.

But many small firms hope that rates will not rise much higher than the current level.

"It is especially important to smaller manufacturers that the Bank of England does not apply the economic breaks too hard as the sector is more vulnerable than most," Mr Williams added.