Over two-thirds of small and medium-sized enterprises (SMEs) are feeling the pressure to increase prices for their goods and services this year due to the prospect of rising wage expenses.
A quarterly survey encompassing more than 4,800 businesses revealed that, despite a decline in inflation and expectations of lower interest rates, labour costs are squeezing profit margins. According to the British Chambers of Commerce survey, 46 per cent of predominantly smaller and mid-sized businesses indicated plans to raise prices this year, with 68 per cent attributing the need to do so to staffing costs.
Concerns are mounting about the Bank of England's ability to reduce interest rates if wages and consumer price inflation persistently remain high. Bank policymakers have cautioned that inflation in the service sector, where labour costs are highest, must decrease more rapidly to warrant interest rate cuts.
The Chambers of Commerce emphasised that escalating labour expenses were identified as the primary cost pressure across all businesses, with over three-quarters of companies in the hospitality and manufacturing sectors experiencing acute wage pressure.
The survey, covering the first quarter of 2024, also revealed stagnant business confidence at the beginning of the year, with companies reporting no upturn in investment intentions or projected turnover.
