Member Article

Inflation fuelled price increase here to stay in North West

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 the North West mid-sized businesses are here to stay.

The survey of 101 mid-sized businesses in early April finds that just under half (44%) have already increased their prices to cover the impact of rising inflation. Another 18% have plans in place to do so in the near term.

Of the 63 North West businesses that have already, or have plans in place to, increase prices, 31% expect the increase to remain in place permanently, demonstrating that it is not viewed as a short-term measure by many. Over a third (37%) expect it to remain in place for at least 12 months.

Confidence in future revenue growth plummets

The research finds that rising costs and the challenging operating environment has also impacted the North West mid-market’s confidence in the UK economy. Only 53% of respondents are optimistic about the outlook of the UK economy, a -11 percentage point (pp) decrease compared to February (64%).

The waning confidence in the UK economy is mirrored in falling optimism in the North West mid-market’s revenue growth expectations. The Tracker recorded a significant drop, falling -22pp compared to February – down to just 44% of respondents.

Similarly, profit growth expectations have faltered, with nearly one third (32%) 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 many areas monitored by the Tracker. Employee wellbeing and benefits were notable exceptions to this trend.

The most significant drop is seen in plant, machinery and new buildings (-14pp compared to the last Tracker). This is followed by R&D (-12pp), skills development (-8pp) and growing in international markets (-4pp).

Carl Williams, Partner and Practice Leader at Grant Thornton UK LLP in the North West, said:
“The North West is bracing itself for another challenging period, with this round noting 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 and benefits 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.

“North West 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.”

This was posted in Bdaily's Members' News section by John Robson .