(Commonwealth_Europe) Many businesses in the UK are facing intense financial pressure, with more than half planning to raise prices in the next three months. According to the British Chambers of Commerce (BCC), a prominent business group, the results of a recent survey conducted among nearly 5,000 firms revealed a significant decline in business confidence. This downturn in optimism has brought confidence to its lowest point in two years. Over 60% of businesses surveyed expressed concern over the tax hikes announced in the recent budget, especially the rise in national insurance contributions (NICs) that will be imposed on employers starting in April.
The UK’s Treasury, however, responded to these concerns by emphasizing that the budget aims to provide stability for businesses. A spokesperson for the Treasury highlighted that over half of employers would either see a reduction in their NIC bills or no changes at all, underlining the government’s commitment to supporting business finances. Despite these claims, many businesses are already grappling with a range of cost pressures, including rising material costs, increased taxes, and growing overheads. This combination of factors has led to the expectation that prices will rise in the coming months, despite concerns over the potential to further stoke inflation.
The impact of these price hikes could be significant, as the UK continues to struggle with the cost-of-living crisis. While inflation has declined significantly from its peak in 2022, it still showed an upward trend in both October and November 2024, as many businesses continue to pass on their higher costs to consumers. The BCC survey found that 55% of firms expected to raise prices in the next three months, up from 39% just a few months earlier.
The situation is compounded by a rise in business expenses, with companies like Denroy Group, a manufacturer of plastic goods in Belfast, forecasting hundreds of thousands of pounds in added costs due to the combined effects of the higher national insurance rates and the increase in the National Living Wage. For many firms, including Denroy Group, this could mean raising prices on some of their products to offset the financial burden, potentially reducing their competitiveness in the market. Denroy’s CEO, Kevin McNamee, emphasized that the company would likely need to focus on boosting productivity and possibly reducing headcount or refraining from expanding the workforce to remain profitable.
While some businesses are worried about the long-term effects of these changes, not all sectors are equally pessimistic. Dame Irene Hays, the owner and director of Hays Travel, a travel company employing around 3,500 people, expressed more optimism. She pointed out that, despite rising costs due to changes in national insurance and the national living wage, her company is seeing positive growth. Bookings at Hays Travel have increased by 22% this year, and Dame Irene remains confident in her ability to manage the challenges. She emphasized that the travel sector, like other industries, must carefully manage its costs and adjust to changes in the economy, yet she remained resolute that her company could withstand the challenges.
The broader picture for the UK economy remains mixed. Official data for the third quarter of 2024 showed stagnation in economic growth, with the economy flatlining between July and September and contracting in October. This news has been a setback for the government, which has placed a strong focus on boosting economic activity. However, a report from KPMG suggests that the economy could experience modest growth in 2025, with a predicted rise of 1.7% compared to just 0.8% in 2024. This growth could be driven by increased consumer spending, buoyed by stronger pay growth and lower interest rates.
However, KPMG cautions that this economic recovery could come at the cost of persistent inflation. As businesses attempt to recover the additional costs they face, there is a real risk that price increases will lead to inflationary pressures that could persist longer than expected. This might make life harder for businesses and consumers and create further challenges for the government as it attempts to balance growth with economic stability.
The latest findings highlight a tense period for UK businesses, many grappling with higher costs and the uncertainty created by the recent tax and wage changes. While some sectors, like travel, have managed to navigate these challenges more successfully, many others face difficult decisions, including raising prices, cutting jobs, or adjusting their growth plans. As the government continues to prioritize economic recovery, businesses must find ways to adapt to the evolving economic environment to ensure their survival and success in the coming months.