Since the 1980s, more UK businesses have been preparing for price hikes than ever before, putting further pressure on squeezed consumers amid recent increases in gas, electricity and petrol prices.
The British Chambers of Commerce said its latest quarterly survey found nearly two-thirds of businesses expect to increase prices in the next three months, the highest since the survey began in 1989.
Amid warnings from opposition MPs and business groups that ministers should offer more support to struggling companies, a record number of manufacturers and service firms said they would hike prices.
The survey of more than 5,600 companies also found that domestic sales stagnated in most sectors and business investment remained at historically low levels.
Investments in plant, machinery and equipment continued to stagnate, according to the BCC, with 27% of companies reporting an increase in capital spending, while 58% reported no change and 15% a decrease.
“This metric remains largely flat since the second quarter of 2021,” she added. And that’s despite a tax break since April 2021 that offers companies a 130% deduction from their profits for every £1 of investment spent.
Labor said the BCC survey showed inflationary pressures were gaining momentum as the cost of imported commodities and energy soared in international markets.
Jonathan Reynolds, the shadow economy secretary, said: “Rather than support business with rising inflation, Conservatives are raising taxes and turning their backs on energy-intensive industries.”
Last month, data showed that consumer confidence had fallen to levels last seen in November 2020, just before the second national Covid-19 lockdown. The popular GfK index fell to -31 in March as consumers were hit by inflation hitting a 30-year high of 6.2%, record-high fuel and food prices, forecasts of multiple rate hikes and higher personal taxes.
Following the Chancellor’s spring statement last month, the Treasury Department’s independent forecaster, the Office for Budget Responsibility, cut its estimate of GDP growth for this year to 3.8%, from a previous estimate of 6%.
When companies were asked by the BCC what pressures they were facing to raise prices, 92% of manufacturers cited raw materials, while 56% cited energy and transport costs, among other overheads.
A third of companies said labor costs also influenced their decision to increase prices following wage increases and an increase in employers’ social security rates since this month.
The percentage who cited recent rate hikes as worrying also rose during the quarter. Almost one in three (32%) companies were concerned about interest rates, up from 27% in the last three months of 2021.
Overall, 62% of companies expected their prices to increase over the next three months, up from 58% in the fourth quarter of 2021. Only 1% expected their prices to decrease.
Suren Thiru, chief economic officer of the BCC, said that while companies had recovered from Plan B in the first three months of 2022 following the end of Covid restrictions, rising inflation and uncertainty caused by the Russian invasion of Ukraine were hampering the However, growth would likely slow the remainder of the year.
Thiru said: “The high price pressures suggest that the current inflationary spurt will escalate significantly in the coming months. The reversal of the hospitality VAT cut, the higher energy price cap and rising energy and commodity prices in light of the Russian invasion of Ukraine should push inflation well above 8% in the short term.”
He added that many companies still lacked the cash reserves to withstand further shocks, leaving them vulnerable to a protracted war in Ukraine and more sustained price hikes.
“Q1 could be the peak for the UK economy as activity is likely to grind to a halt in subsequent quarters as rising inflation, rising energy bills and higher taxes increasingly weigh on activity.”