Only 29% Of UK Businesses To Absorb Higher Costs

According to the latest Lloyds Bank Business Barometer, which covers responses from 4th January to 18th January, just over a quarter of UK businesses will absorb higher costs.

39% of UK businesses see themselves forced to raise prices as a response to the rising costs. Overall, almost half of the UK businesses (49%) surveyed stated, that they expect having to raise their prices.

Businesses remain cautious about the pandemic and are facing into challenges from rising cost pressures although many are raising their prices in response.

Hann-Ju Ho, Senior Economist at Lloyds Bank Commercial Banking

Why Only 29% Of UK Businesses Are Set To Absorb Higher Costs

The emergence of the Omicron variant and rising costs have resulted in a one point drop, to 39%, in overall business confidence compared to December 2021. While business confidence has steadily decreased every month, it is still higher than the long-term average, which lies at 28%.

But UK firms are also less confident when it comes to their trading prospects. With only 41% having a positive view in this respect. And only 38% feel economic optimism, which is down by one point from last month.

With confidence and economic optimism falling, there is no wonder that UK businesses are reluctant to absorb higher costs.

Yorkshire And Humber Most Confident Region

With 48%, Yorkshire and Humber is the most confident region, an increase of 13 points from December 2021. Last month’s most confident region, North East, has seen a fall in confidence by 18 points and now stands at 40%.

Yorkshire and Humber is followed by the East of England, with 47%. London is in the third spot, with 46%. Confidence in the North West lies at 44% and the West Midlands at 39%.

In the other nations, confidence rose in Scotland to 37% and Northern Ireland to 28%. Confidence in Wales has decreased and stands at 26% in January 2022.

Six regions are at or above the UK average while businesses in Northern Ireland have given another show of confidence during January, rising for a second month from it’s low in November of -5%.

Paul Gordon, Managing Director for SME and Mid Corporates, Lloyds Bank Commercial Banking

Confidence In Most Sectors Rising

The manufacturing sector has seen an increase in confidence to 43%, which could be caused by the easing of supply chain issues.

Retail has also gone up in confidence by one point and is now at 44%. The biggest increase has been seen in the hospitality sector, which rose from 6% to 38%.

The service sector has seen a slight decrease by one point and now stands at 38%.

Although businesses hope and expect that trading conditions will normalise together with growth rates, many will feel that they are not able to absorb higher costs, with pay pressures still being high.

While pay growth for UK businesses has slowed in January, 41% expect a pay growth of 2% and 21% a pay growth of 3%. And only 12% expect a pay growth of over 4%, which is down by 2 points from December 2021.

With the National Insurance Contribution (NIC) increase set to come in from April 2022, it is not surprising that many UK businesses are cautious when it comes being able to absorb higher costs.

Adding to this, the National Living Wage (NLW) and the National Minimum Wage (NMW) will also go up from April. Read our news post about the rise of the NLW and NMW and find out if your business is prepared.

And the NIC tax hike combined with the rise in National Living Wage and National Minimum Wage might also have something to do with the reluctance of businesses to hire staff in the coming year.

Less UK Businesses Expect To Hire Staff In 2022

Lloyds Bank’s latest Business Barometer has also indicated that the number of UK firms planning to hire staff in the next twelve months has fallen by 3 points to 46%. This is the at the lowest level since August 2021.

Last month, 49% were expecting to recruit in 2022, so the decrease in confidence has also had an impact on the willingness to increase staffing levels.

Slightly more businesses, 17%, have also reported that they are planning to reduce their staffing levels in 2022. This is one point up from last month.

This means that the net balance has dropped by one point and stands at 29%.

Because this survey was conducted between 4th January and 18th January, the easing of measures announced by the government were not taken into account. There is a chance that the next Business Barometer will show movement in these figures.

As we come out of the pandemic and the economy recovers, UK businesses will see light at the end of the tunnel. This will hopefully result in an increase in confidence and economic optimism, which will lead to more businesses feeling able to absorb higher costs.

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