End of year disruption threatens to derail long-term business recovery

Businesses in the UK are reporting that supply-chain disruption, rising costs and on-going Covid-19 restrictions could lead to a reduction of goods and services and higher prices over the Christmas trading period, according to new research from accountancy firm, BDO.

The bi-monthly survey of 500 leaders of medium-sized businesses reveals that a third of businesses expect their final trading month of this year to be disrupted by rising fuel costs, with the same number concerned about increasing energy prices and a third also concerned about supply chain disruption. 80% of medium-sized business leaders expect their end of year trading to be impacted by at least one of these three factors.

More than a third (34%) also cited ongoing Covid-19 restrictions as an issue likely to impact the availability of products and services.

Reacting to these challenges, nearly half (45%) of businesses are prioritising managing their domestic or international supply chains in the next three months, above other business operations.

As businesses look to the longer term, higher levels of inflation are set to impede growth. More than a quarter (26%) of firms see rising inflation and potentially higher interest rates as the issues that will have the biggest impact on their business in the next year.

Almost a third (32%) of businesses plan to cut the number of products or services they offer as a direct result of inflation, and 31% are planning to increase their prices. This is a particular issue for manufacturing businesses, with almost two fifths (39%) planning to decrease the number of products on offer and a similar number set to increase prices.

Meanwhile, despite warnings around higher living costs in the next few months, almost a fifth (17%) of business leaders said they would not be able to increase pay, which could bring challenges in attracting new joiners at a time when competition for staff is fierce.

Despite accounting for a small proportion of the UK’s businesses overall, mid-sized, private equity owned and AIM listed businesses, what BDO calls the economic engine, contribute £1.3tn to the economy and provide almost 8 million jobs.

Ed Dwan, partner at BDO commented: “Following a year of disruption, many businesses will have been hoping for a strong finish to 2021 and a fresh start for 2022. The harsh reality is that continued supply chain issues, rising energy prices and increasing costs means that many are taking further drastic measures to stay afloat. These issues could also be further exacerbated by the new Covid-19 variant.

“The speculation around interest rate rises is only set to increase, and it’s fair to say all eyes will be on the Monetary Policy Committee when they make a decision later this month.”