British manufacturers are being warned to brace themselves for rising costs as a result of the fallout from Russia’s invasion of Ukraine.

Prices for a range of commodities – including oil, gas, cereals and important metals – are predicted to soar, resulting in higher input costs for businesses.

With trade routes around Russia also uprooted because of the crisis, firms are being warned for continued disruption in their international supply chains.

Knock-on effects

A spokesperson for Make UK, the body representing UK manufacturers, told the IOE&IT Daily Update that despite direct British trade with Russia being relatively small, there will be “knock-on effects”.

“Direct trade with Russia is very small, only 0.8% of goods exports,” they said. “But there may be knock-on effects from energy costs to the cost of and access to raw materials such as titanium, cobalt, nickel, and lithium. Rising energy prices mean that energy intensive industries are likely to incur extra costs”.

On trade with Russia, the organisation said it was not advising companies about who to trade with.

“It’s a decision for individual companies,” the said. “We are advising them to follow government guidance.”

CBI warning

CBI director general Tony Danker has also warned firms to be prepared for the impact of “economic warfare”.

He said that the costs to the UK “will not be measured in defence spending but in firms’ supply chains, in trade, as well as in rising energy prices for companies and soon for individuals too”.

“Many UK firms use raw materials from Russia in their products. Others export to Russia everyday essential items for Russian people. Many large businesses who have Russian interests are divesting,” he added.

Compliance

IOE&IT director general Marco Forgione has warned exporting manufacturers to avoid inadvertently breaching sanctions and to ensure their intellectual property is protected if still dealing with Russian partners.

Speaking about an IOE&IT webinar yesterday (2 March), about how firms can comply with sanctions on Russia, he said: “It is heartening that so many British businesses took the time to learn more about how to comply with these sanctions. They want to make sure that they are not inadvertently breaking the law.”

“Another area of concern is the inadvertent export of intellectual property over the internet,” he added. “Most companies would understand that sending a copy of complex designs to Russia would be an export, but how many would know that even discussing them over a Zoom call could also be breaking sanctions?”

Cyber worries

Manufacturers have also been warned about geopolitical tensions playing out in the digital space, as cyber criminals look to exploit periods of crisis and uncertainty.

Mike Thornton, partner and head of manufacturing at business consultancy RSM, has written: “The manufacturing sector sits within the top three targets for cyberattacks in the UK, and as the cyber risk increases, so does the financial, operational and reputational risk for manufacturers”.

Brands withdraw

Several global brands are also withdrawing sales and operations from Russia, with Ikea the latest to do so.

“The devastating war in Ukraine is a human tragedy, and our deepest empathy and concerns are with the millions of people impacted,” brand owner Inter IKEA and Ingka Group said in a joint statement.