Costs and supply chain challenges continue to threaten mid-market growth

Nearly half  (46%) of medium-sized UK businesses surveyed by BDO expect rising costs and supply-chain disruption to be their main concerns in the coming months.

The continuing Middle East conflict is adding uncertainty around oil, gas and transport costs, forcing some businesses to reconsider investment and pricing decisions. BDO has warned that UK inflation could potentially reach 4% if oil prices rise substantially further.

The pressure continues to be felt most sharply in sectors with complex supply chains and high operating costs, including manufacturing, construction and hospitality & leisure.

Global supply chain disruption continues to drive up transport, fuel and energy costs. As a result, many businesses are changing investment plans and looking for ways to improve efficiency and resilience.

Earlier this year, BDO reported that 60% of businesses intended to halt or pause investment as they waited for the economic situation to stabilise. Three months on this number has reduced, with two fifths (40%) now saying current pressures are forcing them to scale back or pause investment plans, while more than a third (35%) expect to pass additional costs on to customers.

At the same time, businesses are taking steps to reduce their exposure to rising costs. More than a third (35%) plan to reduce energy consumption, while two fifths (41%) intend to accelerate investment in low-carbon technologies.

Previous research from BDO’s Mid-Market Tracker found that businesses are also shortening supply chains. Nearly a third (30%) are prioritising UK-based suppliers, while a similar number are bringing manufacturing closer to home through onshoring and nearshoring to reduce exposure to supply chain disruption.

Richard Austin, Partner at BDO said “Mid-sized businesses continue to demonstrate remarkable resilience in the face of sustained supply chain disruption, rising input costs and ongoing economic uncertainty.

“Many firms are taking positive steps but they are also forced to continue to make difficult decisions around investment and pricing. Increasingly, we’re seeing firms focus on efficiency, resilience and reducing their exposure to external shocks..

“The potential of the UK’s mid-market is significant, but growth is at risk without the right policy environment. Support in these areas would help mid-sized businesses invest with confidence and accelerate growth across the UK.”