UK businesses are bracing for increased labour costs, even as inflationary pressures start to ease, according to the latest Quarterly Economic Survey (QES) from the British Chambers of Commerce (BCC).
The survey found that less than half of the firms (45%) expect their prices to rise in the next three months, a decline from 55% in Q1 of 2023.
The BCC’s QES, which surveyed over 5,000 firms, predominantly SMEs, also revealed considerable sector variation in business performance. It indicated that hospitality and retail firms were experiencing more significant cash flow difficulties than other sectors.
David Bharier, head of research at the BCC, observed: “Once again, data from the Quarterly Economic Survey sees no major improvement to key business indicators. Three years of economic shocks in the form of Covid-19 lockdowns, inflation, and new trade barriers with the EU have placed clear obstacles in the ability of firms to trade and grow.” He called for a clearer Government plan for economic growth to bolster confidence in these challenging times.
The survey, which ran from 15th May to 9th June, showed that business activity growth remained weak, with no significant improvement in sales and cash flow data. Despite this, firms believing their business turnover will increase over the next 12 months rose slightly from 52% in Q1 to 54% in Q2.
The report found labour costs were the primary concern for businesses, as 68% cited them as a significant cost pressure. This shift sees wages overtaking utility bills and raw materials as the main driver of price increases.
Bharier said: “Now many SMEs face further pressure following interest rate rises, as borrowing costs increase. Predictably, investment suffers in such tough conditions.” Despite the economic constraints, business confidence remains high due to the easing of inflation.
Shevaun Haviland, director general of the BCC, responded to the findings by cautioning the Government and the Bank of England about future decisions. She said: “With inflationary pressures weakening, but wage cost concerns remaining high, our research should give the Government and Bank of England pause for thought on their next steps.” Haviland highlighted the need to strike a fine balance, warning that if interest rates are pushed too hard, it could harm the long-term economic growth and prosperity.
She added: “The Government must redouble its efforts to get people back into work and create the right conditions for employers to invest in staff training and development.  Where firms cannot recruit and train from their local or national labour market, a flexible, efficient and affordable immigration system is crucial.” She also warned of the potential of further costs for businesses with upcoming changes on trade with the EU, such as new customs requirements and charges for imports.
