Inflation driving South East businesses into ‘uncharted territory’

The highest rates of inflation seen in a generation are having a huge impact on businesses across the South East, which are now having to raise their prices in response, according to new research from Grant Thornton UK LLP.

In its latest Business Outlook Tracker* survey, Grant Thornton found that 50% of the South East mid-market firms surveyed have already raised their prices, with a further 42% expecting to need to do so in the future.

Almost half (46%) of the businesses who have already, or have plans in place to, increase prices, expect the increase to remain in place for at least 12 months, while nearly one third (31%) anticipate that it will be permanent.

The research also found that amid rising costs, wage inflation and energy bills, confidence in the UK mid-market has dipped. Just 64% of respondents in the South East are optimistic about the outlook of the UK economy, a -12 percentage point (pp) decrease compared to February (76%).  

The latest Tracker also recorded a significant fall in the number of respondents reporting optimism in their future revenue growth – dropping down to 62% of business leaders, compared to February’s total of 72%.

These challenges have also led to changes in investment priorities, with investment expectations for the next six months dropping significantly across all areas monitored by the Tracker.

The most significant drop in the South East’s investment expectations (-36pp compared to the last Tracker) is seen in employee reward and benefits. This is followed by recruitment (-26pp), R&D (-26pp) and skills development (-22pp).

John O’Mahony, a tax partner who heads up Grant Thornton’s Gatwick office, said: “With inflation running at 9% and predicted to rise even further, the South East’s mid-market is currently operating in uncharted territory. While the chancellor’s response may slow the spiralling rate rises somewhat, most businesses are still facing a perfect storm of problems, which now also includes the prospect of a recession looming on the horizon.

“Due to these issues, many are seriously considering when they need to increase prices in order to maintain acceptable profitability and cashflow levels – if they haven’t done so already. Acting quickly and decisively to manage rising inflation rates could mean passing on increased prices to the consumer, but management teams also need to be looking at every aspect of their business to identify potential savings.

“Due to the current situation, there’s been a real shift in the mid-market’s priorities, with the increasing uncertainty stalling investment expectations. This is likely because many businesses are facing a double squeeze, with almost every cost increasing alongside rising concern from the potential of slowing consumer demand.”