Higher wages are the driver of price rises for two-thirds of businesses, according to the British Chambers of Commerce’s (BCC).
The findings also showed that the pace of wage increases had become the biggest cost headache in the period, replacing energy bills.
The Quarterly Economic Survey (QES) for Quarter 2 2023 shows that less than half of firms now plan to raise prices in the next three months as cost pressures ease.
The survey, by the BCC’s Insights Unit, of over 5,000 firms – 92% of whom are SMEs – also reveals business performance across different sectors varies considerably, with hospitality and retail firms suffering more widely from cashflow difficulties.
The research took place between 15th May and 9th June and before the Bank of England increased the base rate to 5%. Respondents were split into 27% manufacturing and 73% services industries, with 47% exporting.
The percentage of firms reporting increased domestic sales remained largely static, with 35% reporting a rise (broadly unchanged from 34% last quarter). Meanwhile 24% reported a decrease and 41% reported no change.
For cashflow, more businesses continue to report a decrease, rather than an increase and again the picture remains largely unchanged since Q1. Just over one in four (26%) businesses said their cash flow has increased over the last three months (25% in Q1), while 29% have seen it decrease (30% in Q1).
Pressures remain highest in the retail and hospitality sectors with 38% and 37% respectively reporting reduced cashflow, while PR and Marketing was the most positive sector with 33% reporting growth.
There was a small increase in the percentage of firms believing their business turnover will rise over the next 12 months, up to 54%, from 52% in Q1.
Profitability confidence also improved slightly to 44% from 42% in Q1, but it continues to remain weaker than turnover confidence
The number of respondents reporting an increase to investment in plant/equipment dropped to 23% from 25% in Q1. Over the last six years this measure has dropped as low as 9% of firms, at the start of the pandemic, but it has never gone higher than 28% (Q1 2018).