Sixty per cent of South West businesses under pressure to raise prices – Business West

Phil Smith – Managing Director – Business West

Almost sixty per cent of South West businesses – and more than 70 per cent of manufacturers – are facing pressures to raise prices due to mounting costs of raw materials and energy costs, according to a new survey conducted by Business West.

More than 430 businesses took part in Business West’s most recent survey of business conditions in the South West, with the findings showing concerns exceptionally high inflation across energy, pay settlements, raw materials and import costs.

Nearly half of respondents have increased their prices over the last three months – up eight points from last quarter, which was already 10 points above Q3 2021 levels.

Aside from supply shortages, many cite rising energy costs and inflationary pressures as key driving factors behind price hikes. Half of respondents expect their energy bill to increase by between 11 per cent and 50 per cent year on year in the next three months, while 63 per cent are concerned about inflation.

As seen throughout 2021, available talent continues to be in short supply with 80 per cent of manufacturers and 69 per cent of service providers struggling to find suitable staff. In addition, retaining staff is proving costly, almost 50 per cent of respondents are facing pressures to raise wages to current staff.

The incoming increase in National Insurance contribution rates from next month will add additional tension to this situation, with close to 40 per cent of businesses admitting that this will result in further inflationary pay pressures.

Looking at the international market, Brexit combined with supply shortages, continues to create challenges for South West exporters. Of the 51 per cent of respondents who sell internationally, 34 per cent have experienced a decrease in their international sales over the last three months.

Only five per cent of the businesses affected by the implementation of the UK-EU Trade Cooperation Agreement believe that it has had a positive impact on their business activity, one year after its application. Fifty per cent of businesses affected have seen a deterioration of their business activity as a result of it.

Domestic sales are looking stronger with 35 per cent of respondents seeing an increase during the past 3 months, despite reporting a deceleration compared to the second half of 2021

Confidence remains high despite the myriad of hurdles facing businesses. Sixty per cent of respondents are confident or very confident about performance prospects for the next 12 months.

Confidence in the UK economy prospects presents a weaker outlook, with only 23 per cent of respondents confident or very confident about them. The surge in positive sentiment started after Q4 2020 with the vaccine rollout and economic reopening has stalled or fallen since Q2 2021.

As in previous quarters, businesses feel more positive in sales terms than they do about profitability – implying an expected margin reduction due to exceptionally high inflationary cost base pressures across the board.

“The Government must do all it can to steady the ship and steer the economy through these uncertain times. In 2021 and the start of this year, we have seen strong inflationary pressures, partly due to labour market shortages, but also due to inflation, driven by rising import costs with global supply chain constraints and Brexit,” said Phil Smith, managing director of Business West.

“The Ukraine crisis adds further pressure to commodity price inflation, particularly to oil, gas and energy costs, and more needs to be done to limit the unprecedented rise in costs facing businesses who are struggling with soaring energy bills.

“The impact of Covid is still being felt by many firms who have been left in a fragile situation. Businesses now need a government that is alert to taking smart short-term measures to help ease the further pressures they face.”

Responses were collected between February 14 and March 8. The latter part of the survey occurred after Russia launched its war against Ukraine on February 24. Ninety-two of the 434 responses were collected after that date. Therefore, this survey may underestimate current business sentiment and the concerns about energy price inflation.