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Costs up, demand down

Another major crisis for UK Businesses

Helen Davey Director 06/10/2022

Just when we thought we were in the clear, UK businesses are now menaced by another major crisis after recently recovering from a crippling two years of the COVID-19 pandemic. The rate of inflation is at the highest we've seen in 40 years. Gas prices have more than doubled since May 2022 and transporting products has been challenging to say the least.

Under a huge government support package, energy bills for businesses will be cut by around half their expected level this winter. Shielding businesses from volatile and crippling costs; the scheme will establish wholesale gas and electricity prices for six months starting from 1 October.

Looking at how UK businesses plan to navigate this landscape, the article will uncover:
• The increase in financial cutbacks and cautious spending habits
• Declining customer demand
• Increasing supplier costs

Whilst larger businesses say they are being more cautious, it is smaller businesses that are making more significant cuts.

Savanta’s Business Tracker, our streamlined monthly tracker of small business owners, directors and business decision-makers at mid-large companies, has gathered data amongst 1005 and 1004 UK businesses between July and August 2022 to better understand business sentiment on this very important issue.

(Note: interviewing was conducted before the government mini-budget and wider support announcements).

Cautious spending and cost-cutting endemic

Data from the Savanta Business Tracker shows that almost half of UK businesses (47%) are currently spending more cautiously.

Larger businesses (£1m+ revenue) appear to be the most cautious (53%) compared to smaller businesses (up to £1m revenue) (43%).

Overall, 4 in 10 businesses have made expenditure cuts, with 13% saying they have cut a significant amount. Whilst larger businesses say they are being more cautious, it is smaller businesses that are making more significant cuts (15% vs 10% for larger businesses).

Cutbacks predicted to continue

When asked how they expect any further changes in costs and inflation to affect their business in 6 months, 42% of businesses said they will still be spending more cautiously, with larger businesses more likely to do so (46%).

Overall, 45% expected to make further expenditure cuts, with 15% expecting these to be significant.

Almost 1 in 2 larger businesses said they would be cutting back further on expenditure overall (47%) with 13% predicting to cut a significant amount. The picture is similar for smaller businesses, but a lower proportion overall expect to make cuts (43%) and a higher proportion expect to be cutting back significantly (17%).

Notably, with the newly announced government support package, perhaps business owners shall reconsider if (and to what extent) these measures are necessary.

The decline in customer demand

Most businesses (55%) have seen demand from their customers decline since the rise in business costs and the cost-of-living crisis. This decline in demand appears to be increasing (52% July to 55% August) and is affecting smaller businesses more (58% vs 52% larger businesses).

Interestingly, 1 in 5 businesses (22%) have seen an increase in demand and this is notably higher amongst larger businesses where some 3 in 10 note customer demand to have increased (30% vs 17% smaller businesses).

Price increases from suppliers

As well as this, 6 in 10 (60%) businesses said supplier prices had increased and this appears to be growing.

Cost crisis predicted to peak by the end of 2023

Most businesses (63%) predict the peak in rising business costs and the cost-of-living crisis by the end of 2023. 72% of larger businesses think the crisis will have peaked by then compared to only 59% of smaller businesses.

Will the Government support package be enough?

If the cost crisis isn’t over before the end of 2023 as the majority predicted, how will businesses cope once the government’s six-month energy support package runs out? Organisations are left hoping that the promised three-month review with an option to extend support for “vulnerable businesses” will provide the safety net they need.

Energy prices are likely to remain high meaning businesses will require support for a longer period to protect jobs and remain competitive.

Described by critics as knee-jerk and short-term, this government package might at least buy time for businesses until a long-term restructuring of the energy supply market is possible.

For more information about our new UK Business Tracker please download our rate card or get in touch with one of our business experts here.

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