Breaking the cost/price spiral
Inflation: It’s not a word that UK businesses have had to contend with in recent times. Apart from a brief hiccup at the end of 2017, the annual UK Consumer Prices Index (CPI) has not risen above 3% in the last ten years. That has helped UK businesses to match steady growth with steady price rises, helping to balance the cost /price equation.
Now, however, with January 2022’s CPI rate coming in at 5.5% it is a different story. Facing, according to the Office for National Statistics (ONS), a rate of annual CPI which has not been seen in the UK since March 1992 when it stood at 7.1%, businesses are looking to raise prices. So much so that a survey by the British Chambers of Commerce has revealed that 73% of businesses are looking to increase the amount which they charge their customers.
Key price drivers according to the survey include wages (63%), utilities (62%), raw materials (52%), and domestic taxes (34%). When it comes to manufacturers some of those figures are even higher with 87% citing the cost of materials as a key pressure point.
Price increases are not the only way to manage the spiral. Fifty percent of businesses overall are also looking to cut costs whilst eighteen percent are considering scaling down investment. It has to be said that the cost cutting measures available will vary according to the type of business. For example if energy prices or the cost of raw materials are pinch points then a business may have to reconsider its strategy or working methodology in order to make meaningful savings.
Having said that, being forced to review the business model is no bad thing. Ongoing technological developments could mean that savings which were not previously available are now in reach. Perhaps there may now be a more efficient way of processing materials in order to reduce wastage or cut energy costs. Or maybe a new system might enable manual processes to be automated, saving time and costs.
In our field we’ve seen how businesses have been able to ‘work smarter’ in order to keep going through successive Covid lockdowns. Even something as simple as a company switchboard can enable businesses to switch calls seamlessly between phone extensions and even outside of the main company. In the process calls can be handled more efficiently whilst also helping to cement good customer relationships. And businesses which are still relying on more traditional types of phone service may wish to consider adopting internet telephony, otherwise known as VoIP. They may find that this not only reduces costs when calling customers or suppliers, calls between different offices or individuals on the same network could be free of charge.
In response to their survey the BCC has called on the Government to consider a five point plan which includes a moratorium on policy measures which lead to increased business costs and a temporary energy price cap for smaller businesses.