Soaring energy bills and rising commodity costs are making operating models “unstable” for SMEs, as costs dampen business outlook
Just under half of SMEs (46%) have a pessimistic outlook on the prospects for the wider UK economy and a further 41% have said the current business environment is unstable, according to the Barclays SME Barometer.
Small businesses are facing a variety of challenges including rising inflation, plus fuel and energy price increases and difficulties hiring new workers, found the report, which surveyed 574 small and medium-sized business leaders between April and May.
The majority of SMEs (74%) said energy bills, inflation, and rising living costs are a long-term concern for their business. And over a quarter of respondents (28%) said they fear these issues will make them less competitive as they will be forced to increase their own prices.
Colin O’Flaherty, head of SME at Barclaycard Payments said: “It’s not surprising that in the immediate term, cost of living increases, rising inflation and difficulty hiring new workers are a major cause of concern for small business owners. It’s vital they continue to tap into the support of the wider business community to get through yet another difficult period.”
However, despite recruitment and labour challenges, almost two-fifths (39%) of respondents said they were hoping to recruit new staff, with businesses reporting they require an average of eight new workers. Others plan to invest in new equipment and technology (32%) and reskilling or upskilling staff (27%).
Martin McTague, chair of the Federation of Small Businesses, said small businesses have no choice but to pass on rising costs, and warned high energy prices are making business unsustainable.
McTague said: “The cost of living crisis starts with a cost of doing business crisis. The prices that small firms pay for inputs are running well ahead of consumer prices – businesses are trying to absorb the difference, but many are being left with no choice but to pass costs on.
“At the local level, the very smallest firms are now reporting unmanageable energy bills, even before the Autumn rise hits them. Some are planning to close their doors as energy bills are so high as to make their business unviable.”
He added SMEs are “defenceless” against rises in electricity and gas costs, as they are not protected by the consumer price cap, nor the “leverage” that big corporates can harness to get the best deals.
McTague called on government to use unspent Covid relief funding to support firms amid rising costs.
He said: “It’s frustrating that, after all this time, that money, which could make a real difference, is still just sitting there.”
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