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Rising costs force UK businesses to ponder price increases

Author: ICAEW Insights

Published: 02 Jul 2021

The aftermath of Brexit and COVID has resulted in a huge rise in costs for business – with 70% of companies facing cost-hikes looking to pass them on to their customers over the coming year. At the same time, supply issues and cost pressures risk hampering a surge in customer demand for products.

A survey of ICAEW members found that increased raw material and transport costs were the biggest sources of rises to their overheads; 90% of businesses who import most of their supplies from outside of the UK said they were being charged more, compared to 70% of businesses who sourced supplies mainly from the UK, the survey found.

At the same time, supply shortages are compounding the issue, driven by a rise in demand as COVID restrictions have eased. Almost two-thirds of businesses said they had experienced supply shortages over the last three months and said their costs had increased as a result. 

Manufacturing is bearing the brunt of the cost hikes, with 92% of businesses in the sector reported that the prices they were paying for supplies had increased. Perhaps not surprisingly, respondents in the sector were more likely than respondents in other sectors to say they would increase their selling prices.

The survey findings have prompted concern that the combination of cost increases and supply blockages could impinge on organisations’ ability to capitalise on a boom in demand; 62% of businesses surveyed reported an increase in customer demand over the past three months.

Iain Wright, ICAEW Managing Director, Reputation and Influence, said the research showed that businesses were continuing to grapple with the combined impact of Brexit and COVID. “Our members - who work in businesses in every UK region and economic sector - are reporting long lead times for raw materials and components, disruptions to supply chains because transport companies are unable to recruit drivers, plus delays at the border as our trading arrangements with Europe have changed. 

“Many businesses who have experienced cost increases are now planning to increase their prices as their ability to meet the post-lockdown surge in demand is constrained by supply hold-ups and associated cost pressures,” Wright added.

While businesses can look for other sources of supply or devise workarounds, Wright said the onus was on the government and the Bank of England to do everything they can to address the inflationary risk, reduce supply blockages and enable businesses to bounce back. “This is particularly important over the coming months as various Coronavirus support schemes come to an end. Businesses need authorities to get inflation under control before it spirals upwards while at the same time keeping the strong recovery on track.”