Rising costs and supply chain challenges continue to threaten UK mid-market growth
Supply chain disruption and rising costs remain the biggest threat facing UK mid-sized businesses, according to new research from accountancy and business advisory firm BDO.
Almost half (46%) of firms say a combination of supply chain pressures, rising fuel and energy costs will be their biggest challenge over the next six months.
The findings come from BDO’s Mid-Market Tracker, a regular survey of 500 businesses with revenues between £10m and £500m. Although concerns remain significant, they have eased slightly since BDO’s previous Mid-Market Tracker research, conducted in the wake of the Middle East conflict.
The pressure continues to be felt most sharply in sectors with complex supply chains and high operating costs, including manufacturing, construction and hospitality & leisure.
Global supply chain disruption continues to drive up transport, fuel and energy costs. As a result, many businesses are changing investment plans and looking for ways to improve efficiency and resilience.
Earlier this year, BDO reported that 60% of businesses intended to halt or pause investment as they waited for the economic situation to stabilise. Three months on this number has reduced, with two fifths (40%) now saying current pressures are forcing them to scale back or pause investment plans, while more than a third (35%) expect to pass additional costs on to customers.
At the same time, businesses are taking steps to reduce their exposure to rising costs. More than a third (35%) plan to reduce energy consumption, while two fifths (41%) intend to accelerate investment in low-carbon technologies. This is particularly high for construction businesses, with more than half (55%) looking to invest in this area.
Previous research from BDO’s Mid-Market Tracker found that businesses are also shortening supply chains. Nearly a third (30%) are prioritising UK-based suppliers, while a similar number are bringing manufacturing closer to home through onshoring and nearshoring to reduce exposure to supply chain disruption.
Richard Austin, Partner at BDO commented: “Mid-sized businesses continue to demonstrate remarkable resilience in the face of sustained supply chain disruption, rising input costs and ongoing economic uncertainty.
“Many firms are taking positive steps but they are also forced to continue to make difficult decisions around investment and pricing. Increasingly, we’re seeing firms focus on efficiency, resilience and reducing their exposure to external shocks. “
Mid-sized businesses play a critical role in the UK economy, generating more than 40% of private sector revenues and employing 11.1 million people, representing more than one in three UK private sector jobs.
BDO’s research also found that one in five (21%) mid-sized businesses would like to see the government prioritise targeted support to address supply chain disruption .
These findings reflect policy recommendations set out in BDO’s recently published Mid-Market Manifesto, which calls for targeted action to strengthen supply chain resilience and support investment.
These recommendations include:
- Review the eligibility criteria for energy cost relief schemes and provide targeted support to mid-sized businesses which fall outside the current schemes.
- Improve access to the electricity grid for manufacturers, including by publishing transparent prioritisation criteria for grid access which recognises supply chain and regional employment impacts.
- Provide increased support for mid-market manufacturers to invest in new technologies, including through match funding, innovation loans and enhanced capital allowances to reduce upfront risk.
Richard continued: “The potential of the UK’s mid-market is significant, but growth is at risk without the right policy environment.
“Support in these areas would help mid-sized businesses invest with confidence and accelerate growth across the UK.”