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Swelling costs threaten to throw UK businesses into a ‘winter freeze’

Countries were already increasingly considering on-shoring supply chains after they were burnt by the Covid-19 crisis disrupting trade flows, according to Goldman Sachs

A “winter freeze” is looming over UK businesses triggered by the ongoing supply chain crisis swelling costs at a record pace, according to fresh figures published today.

Shortages of key materials used by firms engineered by global logistics systems gumming up has raised prices across the board, crimping businesses’ margins.

Research by the Confederation of British Industry (CBI) found costs in the British services industry in the three months to November rose at the fastest pace since the business lobby group started tracking the data in 1998.

The downbeat data points to a difficult period for businesses over the coming festive period, throwing uncertainty over the strength of the UK’s economic recovery from the pandemic.

Charlotte Dendy, head of economic surveys and data at the CBI, said: “Record growth in costs is threatening to put a winter freeze on the service sector recovery next quarter.”

Despite already accelerating at a record print, seven in 10 businesses expect costs to grow even more over the next quarter, squeezing firms’ profits further.

In response to rising costs, businesses are planning to jack up prices to defend against the margin onslaught.

Separate research by British bank Lloyds found half of businesses are preparing to hike prices.

The figures will be sobering for officials at the Bank of England, who have insisted the recent bout of inflation will be temporary despite predicting the headline rate could scale to five per cent next spring.

The Old Lady surprised markets earlier this month when it decided to leave interest rates at a record low 0.1 per cent.

Data published after the Bank’s decision showed inflation hit 4.2 per cent in October, the highest rate in nearly a decade.

London businesses are set to drive the UK’s economic recovery in the coming months despite soaring costs, Lloyds’ research suggested.

“The solid performance of financial and business services, the broader economic reopening and gradual return to offices” meant the capital was the “strongest” region in the UK, the bank said.