The state of the UK economy: what inflation means for businesses

With the UK inflation rate remaining stubbornly high and above our European and US counterparts, we explore the impact on UK businesses and their faith in the Government to support them through the current economic period.

With the UK inflation rate remaining stubbornly high and above our European and US counterparts, we explore the impact on UK businesses and their faith in the Government to support them through the current economic period.

How have inflation rates been impacting UK businesses?

Savanta’s monthly Business Tracker interviews 1,000+ UK business decision-makers, measuring their opinions, challenges and outlooks for their business and the wider economy. Last month, 9 in 10 businesses surveyed reported that inflation is likely to be a challenge for them in the future, with 1 in 5 (18%) saying this is a major challenge. Despite the slowing down of inflation, this is not translating into a slowing down of the impact that it is having.

The cycle of inflation continues under the cost-of-living crisis, and businesses are not immune to these cost pressures. Our UK Business Tracker data reveals that 60% of businesses have experienced a decline in demand due to ongoing inflation.

With products rising in cost, there is less disposable income for consumers to spend. Being more budget-conscious has become the new norm, with adverts from Nationwide talking about how best to cut back on spending by shopping in the reduce to clear section and focusing on being ‘extra cautious when it comes to spending’. Reuters have also reported that British factory output has slowed as they are feeling the impact of client uncertainty.

With business demand taking a hit last month, other problems arise with a third (34%) of businesses facing the challenge of remaining profitable and a quarter (26%) are struggling with cash flow. A third (34%) also report the challenge of keeping up with rising fuel prices and almost half (47%) report their grapple with rising energy prices, showing that UK businesses are still struggling with the impact of high input prices.

What do UK businesses think of the Government’s response to high inflation rates?

There is discontent among businesses about the Government’s handling of inflation and their expectations for greater support from the Government to ease the challenges of inflation. Last month’s poll from our UK  Business Tracker shows that over half (55%) of UK businesses feel the Government is not doing enough to address business costs and the cost-of-living crisis.

This is particularly the case for small businesses, who have felt the cost pressures more than larger companies who likely have the financial flexibility to face inflation. Almost two-thirds (62%) of small businesses (with <250 employees) feel the Government is not doing enough, a significantly higher proportion than the 32% of medium/large businesses (250+ employees) who say the same.

Nevertheless, Government intervention to tackle the current state of inflation is being welcomed by businesses. Three quarters (73%) agree that the crisis requires a ‘big state’ response meaning the government changing fiscal, monetary and regulation policies to provide stability and support to the economy during these challenging times.

With businesses noticing a decline in demand and UK inflation persisting at double-digit levels, there is a growing concern about the future of the UK economy. And without government support, 70% of UK businesses are fearing ‘stagflation’ – a persistent high inflation combined with high unemployment and stagnant demand.

So what’s next?

While the recent slowdown in inflation is a promising sign, the vast majority (91%) of businesses are still prioritising responding to the impact of inflation and wider rising business costs. This is all taking place under the context of businesses continuing to look to the Government to support them in addressing rising business costs and the cost-of-living crisis.

Time (and our ongoing Business Tracker) will be able to tell if the UK Government’s plan to halve inflation by the end of the year is met and whether any further Governmental support is forthcoming…what we can say with confidence is that the challenge of high inflation rates compounded by a lack of Government support is here to stay for the immediate future!

If you’d like to talk to us about our Business Tracker or our work in the B2B space, get in touch with our team at [email protected].

Savanta’s Business Tracker

Our monthly Business Tracker monitors the recovery, resilience and adaption of UK businesses.

It’s an ideal solution if you need to understand the latest pressures and challenges impacting UK businesses (tracked on a regular basis); or if you have a couple of quick questions you need answered, our monthly tracker provides a timely and cost-effective solution!

Click here to find out more.

Further reading:

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