UK manufacturing and engineering SMEs are facing high costs and a skills shortage as labour costs mount.

This is according to Enginuity‘s newest SME Snapshot, which captured insight from 135 manufacturing and engineering SMEs from across the UK, representing 6,500 employees and £1.1bn worth of sales.

High employment costs are outstripping energy costs as the most cited source of pressure to raise prices, the report found.

Most SMEs (76%) are planning to pass these costs onto customers by raising prices. The rise in National Insurance contributions from employers in the last year’s autumn budget by 1.2% has been a strain on my businesses, particularly SMEs.

But this is not the only pressure SMEs are facing, as the report showing that 80% of SMEs are finding it difficult to find skilled staff in the past six months.

Only 24% of SMEs have not been affected by labour and skills shortages, while only 15% find the UK labour market attractive.

“This report is a striking confirmation of how severely the skills system is failing the majority of engineering and manufacturing SMEs, stifling their ability to grow,” Poppy Bramford, policy officer for Enginuity, said.

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Despite these top challenges, most SMEs are optimistic about the coming year, with many making commitments to invest in training to prepare their labour force.

SMEs seemed to be aware of the UK government’s industrial strategy that will aim to support businesses with skills training, investment, and lower fuel prices. While awareness of this was high, only about a third were more optimistic because of it.

“For SMEs to realise the ambitions of the UK government on economic growth, the skills landscape must move beyond policy chop and change by injecting longevity and SME engagement into policy creation,” Bramford said.