Insight: Rising energy costs are testing manufacturers’ resilience – but preparation will define who comes through

For UK manufacturers, energy costs have become more than a line item on the balance sheet — they are now a defining factor in business viability. Todd Davison from Purbeck Insurance Services looks at why planning ahead and understanding where risks sit will be key to long-term resilience.

While prices have stabilised compared to the peaks seen during the energy crisis, they remain significantly higher than pre-2021 levels. Recent geopolitical tensions in the Middle East have added further volatility, pushing wholesale gas and electricity prices upward once again and raising the prospect of renewed cost pressure in the months ahead. As Make UK has highlighted, this ongoing instability continues to weigh heavily on the sector.

The impact is already visible. According to UK Government data, manufacturing consistently ranked among the top six sectors for insolvencies in 2025, accounting for around 8% of all cases where industry was identified. The sector has been under sustained financial strain for more than two years, with energy costs, raw material volatility and skills shortages combining to erode margins and restrict growth.

In some regions, the pressure is particularly acute. The North West, for example, saw insolvency-related activity reach a 25-month high in April 2025. Meanwhile, certain sub-sectors — including electronics, pharmaceuticals and basic metals — have experienced sharper declines in output and greater financial distress.

Against this backdrop, it is important to recognise that borrowing is not, in itself, a sign of weakness. For many manufacturers, accessing finance is a necessary and normal part of maintaining operations, managing cashflow and navigating periods of uncertainty. Whether it is funding energy costs, smoothing supply chain disruption or investing in efficiency improvements, external finance often provides the stability needed to keep a business on an even keel.

However, the nature of that borrowing has changed. Increasingly, lenders are seeking personal guarantees from directors as a condition of support. For business owners, this means that the risks of trading are no longer confined to the company itself, but can extend to personal assets.

In a more volatile cost environment, that exposure becomes more significant. Energy price fluctuations, combined with already tight margins, can quickly turn manageable debt into a much more serious financial risk if trading conditions deteriorate.

This is why financial resilience needs to be viewed more holistically. It is not just about securing funding, but about understanding and managing the risks attached to it. For manufacturers, that means stress-testing business models against further cost increases, maintaining close oversight of cashflow, and ensuring that any borrowing structures are aligned with the level of risk the business is prepared to carry.

Key tips for better financial planning

• Turn financial data into manufacturing insight
Manufacturers should integrate financial and operational data into clear dashboards that tell a story aligned with their objectives. This can help anticipate demand shifts, identify efficiency gains, and highlight opportunities across the value chain. From optimising production capacity to evaluating new product lines or entering new markets, finance should frame decisions around long-term value creation.

• Be proactive, not reactive
Ensure the finance function is engaged early in planning cycles—whether around capital investment, supply chain changes, or production strategy—and bring in data-led insights before decisions are locked in. By challenging assumptions, modelling scenarios, and quantifying risks and returns, finance can influence decisions at the point where they have the greatest impact.

• Align analysis with manufacturing strategy and KPIs
Finance leaders must ensure their analysis is tightly linked to core manufacturing priorities—such as throughput, cost efficiency, supply chain resilience, digital transformation, and market expansion. By connecting financial insight to operational KPIs like OEE (Overall Equipment Effectiveness), inventory turns, and unit cost, finance can bridge the gap between the factory floor and the boardroom.

Recognising that personal financial exposure is now part of the equation for many directors in manufacturing businesses means that taking steps to mitigate that risk is becoming an increasingly important consideration, particularly in sectors where external pressures remain elevated.

Steps to mitigate the risk of personal guarantee backed business loans

• Personal Guarantee Insurance is certainly one way a personal guarantee can be mitigated. This means if the business does fail, 80% of the loan would be settled by the insurance rather than the business owner’s home, savings and other personal assets being called on to settle the debt. There would also be mentoring advice and support at the point the debt needs to be settled, taking a big burden off the shoulders of the business owner at what can be a very stressful time.

• If the business has a number of co-directors it might make sense to share the guarantee amongst this group. It could also be worth asking the lender if a time limit can be agreed for the guarantee or if a cap could be set on the amount.  The downside of this strategy is that as interest rates rise, the costs added to the debt will also rise.

• Explore whether a lender would agree to part of the loan rather than the whole loan being guaranteed could also help mitigate potential personal losses.  The business owner would need to show what assets within the company could be used such as machinery, tools, or computer equipment. If this approach is accepted by the lender the settlement of the debt would be sought first from the company’s assets before enforcing the guarantee.

• Finally but perhaps more importantly, seek independent, expert advice from a solicitor or accountant when faced with a personal guarantee request.

The manufacturing sector has shown remarkable resilience over the past few years. But as energy costs continue to fluctuate and global uncertainty persists, the businesses that will be best placed to weather the next phase are those that plan ahead, understand where risks sit — and taking steps to manage them before they become unmanageable.

For more information on how Purbeck supports SME manufacturers, visit: Purbeck Insurance Services