2022: the year the cost-of-living crisis took its toll on businesses

Moving into 2023, over three in five businesses (63%) foresee an increase in the prices they charge their customers because of rising energy prices.

It is almost impossible not to reflect on the turbulent year gone by. A year dominated by a cascade of challenges – from the war in Ukraine contributing to a spike in energy prices, soaring inflation rates, and the rapidly deteriorating cost-of-living crisis, to the shortest-serving prime minister in British history and the death of a monarch.

Recent data from our UK Business Tracker shows rising energy prices remained the most significant challenge faced by businesses in the last 6 months, gradually rising from 42% of businesses in June to 50% in December. Rising fuel prices remained the second challenge, impacting 37% of UK businesses in December. Unlikely to change soon, businesses are already predicting that energy and fuel prices will still be the two most significant challenges they would have to face in the year ahead (51% vs. 43% as of the end of the year).

At the end of 2022, nine in ten businesses identified both energy prices and the UK inflation rate to be a current (90% vs. 89%) and future challenge (88% each). The impact of these challenges is evident, with over three-quarters of businesses in December stating that rising energy prices (76%) and inflation (77%) continue to have a negative impact on their business.

Consequently, businesses have experienced an overall decline in demand for their services, with this challenge increasing from 52% in June to 60% in December. As a result of this, weekly income/turnover/sales have reduced over the last 6 months, with two thirds (64%) of businesses stating such in December vs. 60% in June.

How businesses have responded:

This decline in income/sales and rising costs have forced businesses to react, with the most common response over the last 6 months being to change the prices they charge their customers for products/services (41% in July vs. 44% in December).

Moving into 2023, over three in five businesses (63%) foresee an increase in the prices they charge their customers because of rising energy prices. Although all sectors are likely to increase their prices, public services (education, healthcare, energy and utilities, and transportation) are the most likely sectors to action this.

Confidence in government vs. Businesses’ own ability:

83% of businesses felt it is the government’s responsibility to address rising business costs and the cost-of-living crisis in November (from 77% in July). In December, more than half of businesses (56%) felt that the government was still not doing enough to address these issues.

Perceived to be most helpful was introducing greater/more stringent windfall taxes (i.e., on energy companies and other sectors profiteering from the current economic environment).

Despite doubts about government actions, businesses continue to demonstrate high confidence in their ability to cope with such challenges. Businesses have consistently remained positive about their survival throughout 2022, and in December, just under four in five (78%) were confident that they will still be operating by the end of the next 12 months.

Despite concerns, by the end of 2022, businesses still felt confident that they can manage rising energy prices and inflation rates. However, levels of confidence were higher amongst medium and large businesses compared to smaller businesses (68% vs. 58% and 71% vs. 56%).

These figures highlight the resilience of UK businesses, and with tailored government intervention, business morale could be even higher in the year ahead. Further supported by the agreement that a ‘big state’ response (i.e., prominent action and intervention by the Government) is needed to tackle the cost-of-living crisis and the costs of doing business. This was agreed upon by 70% of businesses at the end of 2022.

That said, the storm is not yet over, with more than half of businesses in December (55%) predicting that rising business costs and the cost-of-living crisis will peak in either the first or second half of 2023.

Therefore, one question remains – will businesses need to brace themselves for another gruelling year, or will the government finally decide to take the reins? Only time can tell.

Savanta’s Business Tracker will continue to monitor the costs of doing business, while from January 2023 onwards we will be incorporating a new focus on ESG, given that environmental, social, and corporate governance issues are playing an increasing role in businesses’ strategic decisions. Please get in contact to find out more.