Rising fuel prices and energy costs top business challenge list

More than half (57%) of businesses say a combination of supply chain pressures and higher energy and fuel costs are among their biggest challenges as they grapple with the impact of conflict in the Middle East, according to new research from accountancy and advisory firm BDO.

The bi-monthly survey revealed that supply chain pressures including material delays and costs, stock shortages, and suppliers folding were a top concern for two in five business leaders (39%) as they navigate this latest economic shock.

These mid-market companies are a key segment for the UK’s economy, contributing more than £1.8 trillion in revenues and accounting for one in three private sector jobs. However, the effect on their growth plans is concerning.

As a result of ongoing uncertainty, three in five mid-sized companies (60%) intend to halt or reduce investment as they wait for the situation to stabilise, rising to over two-thirds in the retail (69%), tech (69%) and financial services (67%) sectors.

These pressures could leave companies making difficult trade-offs behind the scenes. Businesses are considering steps such as increasing customer costs (38%) and delaying hiring or reducing headcount (30%) as a result.

However, a re-evaluation of priorities could also present growth opportunities for UK plc, as companies seek to shore up their supply chains in light of ongoing pressures.

One in three business leaders is looking to prioritise UK-based suppliers (31%), and a further 28% are considering onshoring or nearshoring, in a move that could provide a boost to UK manufacturing.

Last week, BDO’s monthly Business Trends report revealed that its Output Index had risen slightly in April, fuelling suggestions that businesses were frontloading resources ahead of suspected volatility expected later in the year.

As a result of these challenges, business leaders are looking to the government for additional support in case of further escalation. Popular policy or support measures for the next 12 months include dedicated supply disruption support (e.g. the creation of new grants for businesses that are materially impacted) and transport and fuel cost relief.

Richard Austin, Partner at BDO, said “The mid-market is vital to wider UK growth. These companies are an overlooked engine of our economy, but instead of focusing their sights on expansion, they are struggling to absorb the latest economic shock in an uncertain global and political backdrop.

“There are bright spots in this research for UK manufacturing. However, mounting pressures around energy, fuel costs and supply chains, which were issues affecting businesses even before the conflict in Iran, are only adding to the sustained feeling of uncertainty amongst business leaders.

“Now more than ever, it is crucial that the government is listening to the mid-market and helping them address these challenges head on, whether it be through supply chain disruption support or targeted energy cost relief. Addressing these challenges head on could be the key to providing the stability needed to reignite the UK’s economic growth.”