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Peer2Peer Finance News | November 22, 2017

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SMEs feel the pinch as inflation soars

SMEs feel the pinch as inflation soars
Suzie Neuwirth

UK SMALL businesses have seen their basic costs soar by 3.2 per cent over the past year, but 59 per cent have not prepared for inflationary pressures, Barclays research has found.

The small business cost index, created by the high-street lender in conjunction with the Centre for Economics and Business Research, tracks inflation developments and is calculated based on the annual cost change of a typical basket of goods and services for small- and medium-sized enterprises (SME), including utilities and rent costs. It found that business costs increased by 3.2 per cent over the last year, from 1.1 per cent in February 2016.

Read more: SMEs owed £26.3bn in unpaid invoices          

A survey of 500 UK SME decision makers commissioned by Barclays found that two thirds are planning to increase their prices if inflation rises again, while 17 per cent are afraid to do so and 15 per cent do not know what they will do.

Physical resources, such as basic metals and chemicals, are the largest contributor to SME inflation, rising by 6.8 per cent in the last year.

Meanwhile, labour costs for SMEs increased 2.4 per cent in the three months to January, according to data from the Office for National Statistics, in line with the continued trend of subdued wage growth. Commercial rents also trended downward – the weakest reading in two-and-a-half years. The figures tie in with the broader increase in UK inflation, which hit 2.3 per cent in February and could rise as high as three per cent later this year.

Read more: SMEs missing out on business opportunities due to lack of finance

“In this on-going environment, with both consumers and businesses continuing to feel the squeeze, it is more important than ever for SMEs to have a plan in place to manage the impact of inflationary pressures,” said Ian Rand, chief executive of Barclays Business Banking.

“As overall UK inflation has risen, so too have the costs faced by SMEs themselves. While many SMEs will regrettably feel they have no other alternative but to consider raising their prices, it’s important they review the areas where their bottom line is most affected, buffer the inflation impact by reviewing every day running costs, and consider other areas to help drive business growth such as exploring opportunities overseas.”

Despite rising inflation, 44 per cent of UK businesses are expecting to grow this year and 82 per cent of business owners are planning to invest in their company, according to research conducted by RateSetter Business Finance.

“While the exact impact of Brexit on small- and medium-sized businesses will not become clear for some time, it’s reassuring to see that almost half expect to grow this year and are considering the finance they need to make this possible,” said Paul Marston, RateSetter’s managing director of commercial finance.

“For the best SMEs, 2017 will present many opportunities, and we’re already seeing high-calibre businesses approaching us for finance in order to grow and become more productive.”

Read more: RateSetter poaches RBS manager for SME role