Business recovery under threat amid rising inflation and cost of living crisis

Supply chain issues, rising energy costs and mounting inflation continue to threaten the growth of mid-sized businesses
Almost a fifth say record inflation and the cost of living crisis has or will have a worse impact on their business than COVID-19
Businesses are responding to higher costs in a variety of ways, including raising prices and putting a pause on investment

Supply chain issues, rising energy costs or record levels of inflation are three of the biggest threats facing more than half (58%) of businesses in the next six months, according to new research by accountancy and business advisory firm, BDO.

The bi-monthly survey of 500 leaders of medium-sized businesses reveals almost a fifth (18%) of businesses believe the cost of living crisis and rising inflation has or will have a more negative impact on their business than the COVID-19 pandemic. Warnings from the Office for Budget Responsibility that inflation could hit 10% by the end of 2022 are also serious cause for concern, with more than half of businesses (60%) having only planned for an inflation rate of 6% or less this financial year.

Meanwhile, businesses are battling with the impacts on recruitment and retention efforts resulting from the rise in National Insurance, which came into effect in April. A third (33%) have raised wages in a move to absorb the increased contributions facing their employees, while 31% of businesses are struggling to pay the higher cost to them as employers. Just under a third (30%) have paused or reduced hiring as a direct result.

Businesses are responding to the current economic challenges in a variety of ways. More than a quarter (27%) are increasing prices for end consumers as a result of supply chain disruption.

A fifth (19%) have paused investment in the business completely, while the same number (19%) are unable to prioritise research and development (R&D) for new products and services. This comes despite the government encouraging businesses to innovate through this period of economic downturn. A similar proportion are unable to focus on other areas of growth, including hiring (18%), international expansion (19%) and M&A activity (19%).

Ed Dwan, partner at BDO commented:

“This is a deeply troubling picture for the UK’s mid-sized businesses, who have spent over two years since the start of the pandemic operating in survival mode. Now, mounting inflation and the cost of living crisis is once again preventing them from prioritising long-term recovery, especially by putting a pause on much-needed investment.

“For many, the rise in National Insurance contributions has been a tipping point – resulting in an increase in salaries that could well exacerbate inflation and the pressures facing businesses right now.

“These businesses are the engine of the UK’s economy and without the right support and policies from Government, their long-term growth is at risk.”

For further insights please visit the Rethinking the Economy survey findings.

ENDS

Note to editors

Methodology

Bimonthly survey of 500 medium-sized businesses. Medium sized businesses are defined as businesses with revenue between £10-£300m. The survey was conducted by Censuswide on behalf of BDO in May 2022.

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

Our clients are Britain’s economic engine – ambitious, entrepreneurially-spirited and high-growth businesses that fuel the economy.

We share our clients’ ambitions and their entrepreneurial mind-set. We have the right combination of global reach, integrity and expertise to help them succeed.

BDO LLP

BDO LLP operates in 18 offices across the UK, employing 6,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

BDO’s global network

The BDO global network provides business advisory services in 165 countries, with 97,000 people working out of 1,726 offices worldwide. It has revenues of $11.8bn.

Contacts

Tom Grant
tgrant@headlandconsultancy.com
078 3322 3170

BDO press office:
020 7893 3000
media@bdo.co.uk