Inflation: More than six in 10 UK businesses set to raise prices

·Business Reporter, Yahoo Finance UK
·3 min read
A shopper carrying Tesco bags amid soaring inflation
Inflation: Price expectations are now the highest since records began in 1997 for both the manufacturing and services sectors. Photo: Matt Crossick/EMPICS Entertainment.

As many as 65% of firms are expecting to raise prices in the next three months as soaring inflation continues to eat into margins and profits.

This was up from 62% in the first quarter of the year, a record high, and a 23 percentage point rise compared to a year ago. Only 1% of businesses overall expect a decrease in their prices, the British Chambers of Commerce (BCC) said.

In its quarterly economic survey published on Sunday, more than four in five (82%) firms cited rising prices as a growing concern after UK inflation hit a 40-year high of 9.1% in the year to May.

Expected price rises are being felt most in the retail and wholesale sector, and construction and engineering sector, both at 78%, with production and manufacturing only slightly behind at 77%.

Read more: What is stagflation and can it lead to a recession?

Price expectations are now the highest since records began in 1997 for both the manufacturing (+76%) and services sectors (+56%).

When firms were asked which factors were driving price rises, 67% cited utility bills, 66% labour costs, 56% fuel and 53% raw materials.

The percentage citing interest rates as a concern also rose for the third quarter running as one in three (33%) reported interest rates as a concern, up from 32% in Q1.

The BCC, which surveyed over 5,700 firms, also revealed a weakening in the proportion of companies reporting increased domestic sales, investment intentions, and longer-term turnover confidence.

Indicators for turnover and profitability confidence, as well as investment, also all worsened from their Q1 positions.

Watch: UK inflation hits 40-year record, highest in G7

Firms expecting an increase in turnover over the next twelve months dropped from 63% to 54% — the lowest figure since the last quarter of 2020 when much of the UK was under some form of lockdown.

Confidence in profitability also took a significant knock with 43% predicting an increase, down from 50% in Q1. More than a quarter (28%) are now predicting a decrease in profits.

Unsurprisingly, this declining confidence in business performance has affected firms’ plans to increase investment, with three in four (75%) saying they have no plans to do so. This was up from 73% in Q1.

“This quarter's survey results clearly point to a weakening economic outlook amid unprecedented cost pressures and falling business confidence. Domestic demand continues to show buoyancy, with almost half of respondents reporting increased domestic sales in the quarter,” David Bharier, head of research at the BCC, said

“However, indicators for structural business conditions such as investment, and cash flow, are showing no sign of improvement for most firms.

Read more: UK manufacturing slows as business optimism hits lowest in more than two years

Shevaun Haviland, director general of the BCC, said: “It is not too late for the government to take action to help businesses through these challenging times and put the economy on a more stable footing.

“A cut in VAT on energy bills to 5%, and other steps to relieve the tax burden on firms to encourage investment are crucial.

“Better infrastructure, a plan to address labour shortages and a unified long-term economic strategy to give businesses more certainty are also needed.

“The government must swiftly demonstrate that it is on the side of business if confidence to invest is to be restored. Only then will we be able to return some momentum to the economy and find a pathway through the current difficulties.”

Watch: How does inflation affect interest rates?