Due to increased financial pressure on Small and Medium Enterprises (SMEs), one in four already had to enact price increases, according to a study by lending firm iwoca.
The small business lender surveyed over 500 small business owners and found that 46% are hugely concerned about the increased running costs of their businesses. Followed by concerns about supply chain issues and personal and staff illness.
As a result, 26% of the surveyed businesses already had to put up their prices to cope with the rising costs.
Energy Price Hike Main Reason For Price Increases
The main reason business running costs have increased so much is because of the hike in energy prices. 36% of small business owners have reported that their energy costs had increased last year. For one in five they increased by 15% and for one in ten by as much as 20%.
With another spike in energy bills expected in October, no wonder small businesses are struggling. Many business owners face a double whammy with energy prices increasing for the business and at home.
But while there are price caps in place for domestic households, for businesses there is no such protection. This prompted a third of small businesses to aim at reducing their energy usage. Despite the fact that 17% said this would have a negative impact on their business.
So many small businesses face a dilemma of trying to save energy to keep costs manageable but losing out on business or increasing their prices to keep up with the rise in costs and risk losing customers.
Despite the negative impact, it seems for many price increases are the only option.
Small business owners around the UK face a double hit on energy bills – at home and for their business. Whilst households are protected by the energy price cap, businesses are left exposed to skyrocketing prices. Many small businesses cannot absorb the costs of higher bills, meaning customers will be hit by increased prices and business closures.Seema Desai, Chief Operations Officer at iwoca
UK Businesses Losing Confidence
The already high energy costs have been driven up even more since Russia’s invasion of Ukraine, which has also exacerbated the rise of commodity prices, as well as inflation.
Inflation stands at 7% at the moment, according to figures by the Office for National Statistics (ONS), but the Bank of England expects it to rise to 8% this spring and possibly even higher later in this year.
Combine the rising costs of running a business with sky-high inflation and a 1.25% rise in National Insurance Contributions (NICs) that came in on 6 April, and it’s no wonder that employer’s confidence has gone down to -11 in the three months to March, according to the Recruitment and Employment Confederation (REC).
Businesses are seeing tax rates and uncapped energy costs rise, as well as pressure on salaries from staff who are seeing their own bills go up. So it is no surprise that firms are more concerned about the outlook.Neil Carberry, Chief Executive of the REC
As many small businesses see price increases as the only way to stay in business, it is understandable that they are not confident in the UK’s and their own business’ economic prospect.
And the International Monetary Fund (IMF) agrees, as it has downgraded its growth forecast for the UK this year from 4.7% to 3.7%. As a reason for the downgrade, they gave the severe rise in cost of living, which has caused customers to slowdown their spending.
However, the IMF also states that the UK is expected to do better than other G7 countries. Both Germany and Italy had their growth forecasts for 2022 reduced by over 1%, and it stands now at 2.1% for Germany and 2.3% for Italy.
This is because both countries are more exposed to Russia and the effects of the Ukrainian war than the UK.
Limited Companies Worst Affected By Inflation
While 50% of business owners replying to iwoca’s survey reported that they were affected by high inflation rates, not all businesses were affected equally. The data showed that limited companies were 10% more likely to say that high inflation has impacted on their business.
On the other hand, sole traders were less likely to see an impact on their business. However, when it comes to managing the rising costs, sole traders were less likely to be able to absorb the costs.
Only 15% reported being able to afford to do so. While 26% of limited companies said they could absorb the rising costs of energy prices.
So, it would appear that sole traders are more likely to opt for price increases than limited companies.
However, UK companies still have strong intentions to hire staff in the coming months, which is good news. According to the REC, demand for permanent staff in the short term went up by 9% and for the medium term by 7%.
This shows that businesses hope to be able to profit from the recovery of the UK economy after the pandemic.