More UK businesses are preparing to raise prices than at any time since the 1980s, heaping further pressure on hard-pressed consumers amid recent increases in gas, electricity and petrol prices.
The British Chambers of Commerce said its latest quarterly survey found almost two-thirds of firms expected to raise prices over the next three months, the highest since the survey began in 1989.
Amid warnings from opposition MPs and business groups that ministers should offer more support to struggling businesses, a record number of manufacturers and services firms said they would be increasing prices.
The survey of more than 5,600 firms also revealed domestic sales had stagnated across most sectors and business investment remained at historically low levels.
Investment in plant, machinery and equipment continued to stagnate, the BCC said, with 27% of firms reporting an increase in investment spending, while 58% reported no change, and 15% a decline.
“This metric remains largely unchanged since the second quarter of 2021,” it added. This is despite a tax break since April 2021 that offers firms a deduction from their profits of 130% for each £1 of investment spending.
Labour said the BCC survey showed inflationary pressures were gaining momentum, as the costs of imported raw materials and energy surged on international markets.
Jonathan Reynolds, the shadow business secretary, said: “Instead of supporting business with spiralling inflation, the Conservatives are ramping up taxes and turning their back on energy intensive industries.”
Last month, data showed consumer confidence fell back to levels last seen in November 2020, just before the second national Covid-19 lockdown. The widely used GfK index tumbled to -31 in March as consumers were hit by inflation reaching a 30-year high of 6.2%, record-high fuel and food prices, predictions of several interest rate hikes and higher personal taxes.
After the chancellor’s spring statement last month, the Treasury’s independent forecaster, the Office for Budget Responsibility, cut its estimate of GDP growth for this year to 3.8%, down from a previous estimate of 6%.
When firms were asked by the BCC what pressures they were facing to raise prices, 92% of manufacturers cited raw materials, while 56% pointed to energy and transport costs among other overheads.
A third of firms said the cost of labour was also influencing their decision to raise prices after increases in wages and a hike in the employers’ rate of national insurance from this month.
The percentage citing recent increases in interest rates as a concern also rose in the quarter. Nearly one in 3 (32%) firms were worried about interest rates, up from 27% in the last three months of 2021.
Overall, 62% of firms expected their prices to rise in the next three months, up from 58% in the fourth quarter of 2021. Only 1% expected a decrease in their prices.
Suren Thiru, the BCC’s head of economics, said that while businesses had bounced back during the first three months of 2022 after the end of plan B Covid restrictions, rising inflation and the uncertainty caused by the Russian invasion of Ukraine were likely to slow growth during the rest of the year.
Thiru said: “High price pressures suggests that the current inflationary surge will escalate significantly in the coming months. The reversal of the hospitality VAT cut, the higher energy price cap and soaring energy and commodity prices amid Russia’s invasion of Ukraine, should lift inflation well above 8% in the near term.”
He added that many firms still lacked the cash reserves to withstand further shocks, making them vulnerable to a long war in Ukraine and more persistent price increases.
“The first quarter may be the high point for the UK economy with activity likely to stall in subsequent quarters as surging inflation, rising energy bills and higher taxes increasingly drags on activity.”
