Supply chain issues, energy costs and inflation threaten business growth

Supply chain issues, rising energy costs or record levels of inflation are three of the biggest threats facing more than half (58%) of businesses in the next six months, according to new research by accountancy and business advisory firm, BDO.

The bi-monthly survey of 500 leaders of medium-sized businesses reveals almost a fifth (18%) of businesses believe the cost of living crisis and rising inflation has or will have a more negative impact on their business than the COVID-19 pandemic. Warnings from the Office for Budget Responsibility that inflation could hit 10% by the end of 2022 are also serious cause for concern, with more than half of businesses (60%) having only planned for an inflation rate of 6% or less this financial year.

Meanwhile, businesses are battling with the impacts on recruitment and retention efforts resulting from the rise in National Insurance, which came into effect in April. A third (33%) have raised wages in a move to absorb the increased contributions facing their employees, while 31% of businesses are struggling to pay the higher cost to them as employers. Just under a third (30%) have paused or reduced hiring as a direct result.

Businesses are responding to the current economic challenges in a variety of ways. More than a quarter (27%) are increasing prices for end consumers as a result of supply chain disruption.

A fifth (19%) have paused investment in the business completely, while the same number (19%) are unable to prioritise research and development (R&D) for new products and services. This comes despite the government encouraging businesses to innovate through this period of economic downturn. A similar proportion are unable to focus on other areas of growth, including hiring (18%), international expansion (19%) and M&A activity (19%).

Ed Dwan, partner at BDO said “This is a deeply troubling picture for the UK’s mid-sized businesses, who have spent over two years since the start of the pandemic operating in survival mode. Now, mounting inflation and the cost of living crisis is once again preventing them from prioritising long-term recovery, especially by putting a pause on much-needed investment.”

“For many, the rise in National Insurance contributions has been a tipping point – resulting in an increase in salaries that could well exacerbate inflation and the pressures facing businesses right now.”

“These businesses are the engine of the UK’s economy and without the right support and policies from Government, their long-term growth is at risk.”