Over half of SMEs not prepared for inflation changes

More than half (59%) of UK small- and medium-sized enterprises (SMEs) are not prepared to manage fluctuations in inflation despite recent rises.

Basic costs for the average UK small business have risen by 3.2% over the last year compared with 1.1% in February 2016, according to Barclays’ Small Business Cost Index.

The index – which was created in conjunction with the Centre for Economics & Business Research – found that almost two-thirds (63%) of businesses would increase their prices if inflation rises again.

Ian Rand, CEO of Barclays Business Banking, said that both consumers and businesses continue to feel the squeeze.

“…It is more important than ever for SMEs to have a plan in place to manage the impact of inflationary pressures.”

Just under a fifth of businesses (17%) admitted they were afraid to increase their prices, while 15% didn’t know exactly when they would do so.

Larger businesses (those with more than 10 employees) are the most likely to increase prices (77%), compared with just 42% of sole traders.

Meanwhile, labour costs for SMEs increased by 2.4% in the three months to January.

The index highlighted regional variations with costs for SMEs in Northern Ireland and Wales rising 3.6% and 3.5% respectively, compared with figures for the South-East and London, which had lower increases of 3.0% and 2.8% respectively.

The inflation rate varied across sectors with manufacturing seeing the biggest increase in costs in the last year of 5.7% – the highest recorded since 2009.

Businesses in the construction sector saw costs increase by 4.1% in 2016.

“As overall UK inflation has risen, so too have the costs faced by SMEs themselves,” Ian added.

“While many SMEs will regrettably feel they have no other alternative but to consider raising their prices, it’s important they review the areas where their bottom line is most affected, buffer the inflation impact by reviewing everyday running costs, and consider other areas to help drive business growth, such as exploring opportunities overseas.”

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