The Cumbrian-based mill, which posted a pre-tax profit of £1.3m for the same period last year, said its Speciality Papers divisions had been particularly affected by the rising costs.

Chairman James Cropper said: "The loss arose as a consequence of James Cropper Speciality Papers being severely affected by the rising cost of energy and pulp."

The decline in profit came despite an increase of around 6% in group revenues, which rose from £35.7m to £37.7m, and increases of 7% and 11% in Speciality Paper's turnover and average selling price respectively.

Cropper said: "Despite this improvement in turnover, the performance of Speciality Papers was dominated by severe increases in the cost of gas, and pulp maintaining its high price.

"As a consequence, Speciality Papers traded at a loss during the opening half-year."

According to the company, gas prices in the first half-year surged 150% compared with the previous year, leading to a projected full-year cost increase of £2.8m on top of last year's £2.7m gas bill.

Meanwhile, recent falls in the cost of pulp, which at $890 (£600) per tonne remains $10 per tonne more expensive than at the start of the year, have been negated by the weakness of the pound against the dollar.

In addition, the company's pensions deficit rose £8.2m to £10m as a result of recent turmoil in the financial markets.

Cropper said that it would mitigate rising costs in the second half-year through further sales price increases and that it did not anticipate losses in its Speciality Papers division to grow significantly over the remainder of the financial year.

However, given the uncertainties surrounding exchange rates, energy prices and pulp costs, Cropper said the outlook for the division was "difficult to project".

The company's share price was largely unmoved by the announcement, falling marginally from 104.5p to 102p.