As businesses continue to operate in an increasingly challenging environment and brace for the impact of rising cost and wage inflation and energy bills, the latest research from Grant Thornton’s Business Outlook Tracker* finds that recent price increases by UK mid-sized businesses are here to stay.
The survey of 604 mid-sized businesses in early April finds that one in three (32%) have already increased their prices to cover the impact of rising inflation. Another 27% have plans in place to do so in the near term.
Of the 358 businesses that have already, or have plans in place to, increase prices, 20% expect the increase to remain in place permanently, demonstrating that it is not viewed as a short-term measure by many. Just under half (45%) expect it to remain in place for at least 12 months.
Confidence in future revenue growth plummets to record low
The research finds that rising costs and the challenging operating environment has also impacted the mid-market’s confidence in the UK economy. Only 57% of respondents are optimistic about the outlook of the UK economy, a -8 percentage point (pp) decrease compared to February (65%).
This is the biggest drop in confidence recorded since October and is the lowest level recorded by the Tracker to date, with optimism steadily decreasing since August last year.
The waning confidence in the UK economy is mirrored in falling optimism in the mid-market’s revenue growth expectations. The Tracker recorded the lowest level of optimism to date, falling -11pp compared to February – down to just 54% of respondents.
Similarly, profit growth expectations have faltered, with over one third (38%) expecting their profits to decrease over the next six months. A +3pp increase compared to February.
Rising costs stall future investment plans
Rising costs and the drop in confidence across the market is also found to be impacting future investment priorities, with investment expectations for the next six months dropping significantly across all areas monitored by the Tracker, except employee wellbeing.
The most significant drop (-8pp compared to the last Tracker) is seen in plant, machinery and new buildings. This is followed by technology (-6pp), employee reward and benefits (-6pp) and skills development (-6pp).
Dave Munton, Head of Markets and Clients, Grant Thornton UK LLP, said:
“The mid-market is bracing itself for another challenging period. With increasing uncertainty stalling investment expectations in all areas except employee wellbeing, this round noted a real shift in the mid-market’s priorities. This could be demonstrating the lingering effects of the pandemic, with the renewed focus on employee wellbeing being maintained across the market, and also the market’s ongoing response to the fight for talent – as businesses continue to do all they can to both attract and retain their people.
“Businesses are continuing to face a perfect storm of issues with rising costs from all sides putting pressure on many to increase prices as they focus on maintaining profitability and cashflow levels. With inflation hitting a 30-year high, many businesses face a double squeeze, with almost every cost increasing alongside rising concern from the potential of slowing consumer demand.
“It’s important for businesses to act quickly and decisively to ensure that rising inflation does not impact them too severely. It is inevitable that this will mean increased prices being passed on to the consumer, but business leaders also need to look at every aspect of their business, particularly their operational efficiency and supply chain resilience, to identify any areas of potential saving.”
*The Grant Thornton Business Outlook Tracker is a bi-monthly survey of UK mid-market businesses which commenced in January 2021. Censuswide (on behalf of Grant Thornton UK LLP) surveyed 604 senior decision makers in UK mid-market businesses between 7-14 April 2022. The mid-market is defined as businesses with turnover between £50million - £500 million.