More UK businesses are preparing to raise prices than at any time since the 1980s, adding pressure on hard-pressed consumers amid recent rises in gas, electricity and petrol prices.
The British Chamber of Commerce said its latest quarterly survey found nearly two-thirds of businesses expected to raise prices in the next three months, the highest level 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 manufacturing and service companies said they would raise prices.
The survey of more than 5,600 companies also revealed domestic sales stagnated in most sectors and business investment remained at historically low levels.
Investment in plant, machinery and equipment remained stagnant, the BCC said, with 27% of companies reporting an increase in investment spending, while 58% reported no change and 15% a decrease.
“This metric remains virtually unchanged from the second quarter of 2021,” it added. This is despite a tax break from April 2021 that offers businesses a 130% deduction from their profits for every £1 of investment spending.
Labor said the BCC survey showed inflationary pressures were gathering momentum as the costs of imported raw materials and energy rose on international markets.
Jonathan Reynolds, the shadow business secretary, said: “Instead of supporting business with spiraling inflation, the Conservatives are raising taxes and turning their backs on energy-intensive industries.”
Last month, data showed consumer confidence slipping back to levels last seen in November 2020, just before the second national Covid-19 lockdown. The widely used GfK index fell to -31 in March as consumers were hit by inflation hitting a 30-year high of 6.2%, record fuel and food prices, predictions of various higher interest rates and personal taxes.
Following the chancellor’s spring statement last month, the Treasury’s independent forecaster, the Office of Budget Responsibility, cuts its GDP growth estimate for this year to 3.8%, down from a previous estimate of 6%.
When the BCC asked companies what pressures they faced to increase prices, 92% of manufacturers mentioned raw materials, while 56% pointed to energy and transportation costs, among other overheads.
A third of businesses said the cost of labor was also influencing their decision to raise prices after increases in wages and an increase in employers’ national insurance rate from this month.
The percentage citing recent interest rate increases as a concern also increased in the quarter. Almost one in 3 (32%) companies were worried about interest rates, up from 27% in the last three months of 2021.
Overall, 62% of companies expected their prices to rise in the next three months, compared to 58% in the fourth quarter of 2021. Only 1% expected a decrease in their prices.
Suren Thiru, head of economics at BCC, said that while companies recovered during the first three months of 2022 after the end of the plan B Covid restrictions, it is likely that the increase in inflation and uncertainty caused by the invasion Ukraine’s Russian economy will slow growth for the rest of the year.
Thiru said: “High price pressures suggest that the current inflationary surge will intensify significantly in the coming months. The reversal of the hotel VAT cut, higher energy price cap and soaring energy and commodity prices amid Russia’s invasion of Ukraine should push inflation well above 8% in the short term”.
He added that many companies still lacked the cash reserves to withstand further shocks, leaving them vulnerable to a lengthy war in Ukraine and more persistent price increases.
“The first quarter may be the highest point for the UK economy, and activity is likely to stall in the following quarters as rising inflation, rising energy bills and higher taxes drag every activity again.