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Small businesses suffer unprecedented cost assault in sign of more economic woe

Chancellor Jeremy Hunt has been urged to focus his Autumn Statement on small businesses via policies aimed at rates relief, boosting the workforce and planning reforms.
Chancellor Jeremy Hunt has been urged to focus his Autumn Statement on small businesses via policies aimed at rates relief, boosting the workforce and planning reforms.

Swelling costs are eating away at small businesses’ margins in a sign that a key engine of the UK’s recovery is beginning to stall, reveals fresh research published today.

Nearly nine in 10 small businesses have experienced an uptick in their operating costs, squeezing their room to combat what is expected to be a weaker than expected year of economic growth, according to the Federation of Small Businesses (FSB).

Rising fuel and energy costs, primarily the result of Russia’s invasion of Ukraine and tight oil and gas supplies, are the main culprits hitting small firms’ bottom lines.

The fresh research illustrates that the current inflation crunch ensnaring the UK economy is generating both a “cost of doing business” and cost of living crisis, according to the FSB.

“Spiralling costs are eroding small business margins at a rate that many have never experienced before,”  Martin McTague, national chair of the FSB, said.

A shallower labour pool caused by thousands of workers leaving the jobs market has resulted in a majority of firms scaling back activity.

The FSB’s research chimes with bleak forecasts and data released last week illustrating the UK economy is on a much weaker footing compared to the start of the year.

The International Monetary Fund slashed its 2022 forecasts for growth one percentage point, while a survey published by GfK revealed consumer confidence has plunged to levels not seen since the financial crisis in 2008 and are now lower than at any point during the pandemic.

Optimism in business prospects vary by sector due to different types of firms having differing degrees of exposure to cost pressures.

UK factories are the least optimistic, at minus 9.1, primarily caused by the sector relying heavily on commodities, which have soared in price, to do business.

Retailers were the second most pessimistic, at minus 8.2, driven by an expected slowdown in consumer spending in response to the historic cost of living crunch.

Separate research by consultancy BDO released today found eight in 10 retailers had planned for a peak inflation rate of five per cent or less this year, suggesting many of them are unprepared for an already 30-year high cost of living of seven per cent to possibly reach double-digits in the autumn.