Businesses see prices increase but not all are willing to absorb rising...

Businesses see prices increase but not all are willing to absorb rising costs

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Around half of businesses (53%) have seen input prices increase over the past year but of those that have, less than half are willing to absorb the costs with 54% planning to offset the rise. Most will be passing the cost rise onto customers or finding cheaper suppliers according to new ICAEW research. Reducing wages and  planned investment are among the least popular options to offset the increases.

Companies that have seen increases in prices cite a rise in the cost of raw materials (35%) and the cost of services (29%). Other reasons include the changes in the exchange rate and the price of labour (Other totalling 30%). Those businesses who export and whose input prices are in foreign currency have been more impacted. Despite this, only 54% are planning to offset the increase in input prices in the next 12 months.

Stephen Ibbotson, ICAEW Director of Business, said: “Businesses are facing pressure from the fall in sterling and rise in commodity prices which together have driven up prices. Whilst many have sought to protect customers from those rises by absorbing the costs, that is no longer sustainable. It is not surprising therefore that more than half of companies are planning to offset the rising costs. UK companies cannot put off decisions that will undermine or hinder the economic progress made in recent years and need to take advantage of new opportunities.”

Those businesses who are planning to offset plan to increase prices charged to customers (82%), find cheaper suppliers (48%) and revise product specifications (31%). Reducing headcount (27%) and planned investment (14%) are among the least popular options.

The changes in the pound since last year has had a varied impact on UK businesses. Over a third (37%) believe the devaluing has had little or no impact on their business, 37% a negative impact and 24% a positive impact –  especially among exporters. Increased costs (77%) was the main reason companies felt the changes in the value of the pound had had a negative impact.

Stephen Ibbotson concluded: “Government needs to spell out and put in detail how it can partner with business to make the long-term investments necessary to secure the UK’s economic future and make it the best place to do business.”

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