UK businesses face a power struggle with soaring energy prices

Surveying 1,000+ UK businesses at the start of the year, the overall challenge faced by businesses regarding the affordability of rising energy prices still stands at a staggering 89%.

Political stability may give businesses some hope, but inflation is still high and demand low.

The increased operational costs continue to cut into profits for many businesses, making it harder to remain competitive. According to the latest survey data from our UK Business Tracker, 80% of businesses have been negatively impacted by rising energy prices, with 1 in 3 (34%) experiencing a “significant” negative impact.

Adapting to the environment

To cut back on expenditures, 39% of businesses surveyed stated they have increased their prices to customers and/or clients, whilst 37% have reduced energy usage in offices, with a further 23% investing in new energy-efficient technology and machinery.

One in three of the businesses that increased their prices did so above the rate of inflation, which could lead to reduced purchase retention if cheaper alternatives are available. This situation may ultimately result in reduced profitability for companies, particularly small and medium-sized enterprises, especially in the wake of a recession.

Almost one in four (38%) UK businesses plan to increase prices to customers and clients in the next six months, while 34% plan to reduce energy usage in their offices. Furthermore, 24% are investing in technology and machinery that is more energy-efficient than their current ones.

Although businesses are adopting sustainable practices to reduce their reliance on expensive fossil fuels and lower their carbon footprint, they are still anxious about the ever-increasing energy prices and uncertain about how they will adapt to them in the next six months.

Government intervention

Government policy integration is necessary to support businesses in addressing these challenges. The Energy Bill Relief will come to an end on April 1st, 2023, while the Energy Bills Discount scheme provides discounted rates on fixed-priced contracts signed on or after December 1st, 2021, as well as deemed and out-of-contract rates subject to minimum thresholds.

However, funding cuts to this scheme compared to the Energy Bill Relief cuts could leave businesses worse off than before.

Looking forward

Political stability may give businesses some hope, but inflation is still high and demand low. With Government support uncertain and possibly further slimmed down or cut, UK businesses may hope for falling wholesale energy prices and cost savings to be passed on to them sooner rather than later, while also seeking continued government support to address these ongoing challenges.