Cost of living crisis ‘a bigger threat to firms than pandemic’
A fifth of companies expect that the cost of living crisis will be worse for their business than the pandemic, a new survey has found.
The biggest threats facing businesses over the next six months are rising energy costs and inflation and disruptions to the supply chain, which have been worsened by lockdowns in China, according to a survey of 500 leaders of medium-sized businesses by BDO, the accounting and business advisory firm.
The Bank of England has warned that inflation could exceed 10 per cent in October, well above its target of 2 per cent. Sixty per cent of businesses surveyed have planned for a rate of 6 per cent or less in the current financial year. More than a quarter have increased prices to rebuild margins and a fifth have paused their investment plans.
Ed Dwan, partner at BDO, warned that the survey was “deeply troubling”. He said: “For many, the rise in national insurance contributions has been a tipping point — resulting in an increase in salaries that could well exacerbate inflation and the pressures facing businesses right now”.
The number of businesses that went bankrupt in April was almost double the level recorded a year ago, when the furlough scheme was still in place, and about 40 per cent higher than pre-pandemic levels, the latest government figures show. The consumer prices index, which is the headline measure of inflation, hit a 40-year high of 9 per cent in April led by a sharp rise in the price of energy, fuel and food.
Rishi Sunak is due to be questioned by the Treasury select committee this afternoon on whether his £21 billion package of policies to support households with the cost of living crisis will fuel further inflation. Under the plans, every household will receive £400 to help with energy bills and those on benefits will receive an additional payment of £650. About £5 billion of the spending will be funded by a windfall tax on the profits of oil and gas companies, who have benefited from the rise in commodity prices.
The Bank of England could have done more to contain the surge in prices as coronavirus lockdowns eased, according to Sir Howard Davies, chairman of NatWest group and a former deputy governor of the central bank.
Davies, 71, said that the Bank’s monetary policy committee could have raised rates earlier and slowed down on the £895 billion quantitative easing programme. He told media that, while he accepted most of the inflationary pressures were outside the Bank’s control, “there is an element of what’s going on which does relate to very rapid increases in the money supply, which were driven by very low interest rates and by massive [quantitative easing]”.
