News

October 19, 2012

Businesses face “winter of discontent” as costs rise ahead of inflation

The cost of doing business has continued to rise during 2012, with energy costs still the most commonly seen increase among SMEs, according to research by the Forum of Private Business (FPB).

The Forum’s latest quarterly survey of its members shows that firms are still facing an uphill battle to make ends meet.

In total, it reveals that 95% of businesses have seen an overall increase in their business costs. 85% of businesses reported an increase in energy costs, 88% in transport costs, 82% saw a rise in marketing costs, and 73% faced a rise in the cost of raw materials and stock.

In addition, the report found that one in three business owners said they were unable to pass rising costs onto customers, forcing them to cut their own costs to keep prices static.

Alex Jackman, the FPB’s senior policy adviser, said: “The major reasons for increases in prices are predominantly down to VAT and energy prices rising, coupled with the weakness of sterling for importers. Unfortunately, it doesn’t look as if there is going to be any respite from energy hikes any time soon. On the horizon we have a 3p a litre increase in fuel duty scheduled for January.”

Jackman added: “It could be that we are shaping up for another winter of discontent, particularly if the mercury plunges this winter and firms are hit with huge heating bills and a fall in trade like we saw three years ago. Many firms are already battling the economic elements, but if the weather turns it could spell the end for those already walking a cost tightrope.”

While annual inflation has dropped from around 5% to 3%, the research found small business inflation running at 6.7%. This means prices have risen far faster for micro, small and medium-sized businesses than for the rest of UK society, although this is less than the 8.3% figure reported by the Forum last year, suggesting things have slightly improved.

According to the survey, 81% of firms indicated that changes in costs have been detrimental to their business. 66% have reported cash flow issues as a result, while 56% reported it has been detrimental to employment levels. Worryingly, 69% feel that it has inhibited growth ambitions.

And, say FPB members, the future looks set to remain bleak with four in five expecting prices to continue to increase in 2013, and 14% expecting a significant increase.