SMEs braced for inflation rise
According to the latest Owner Managed Business Barometer published by Bank of Cyprus UK, the UK’s business owners and small businesses are bracing for a potential rise in inflation in 2017, but remain unconcerned by last year’s fall in sterling. The OMB Barometer, which also captures a broader picture of small business confidence in the UK, shows that confidence has declined by a third since its peak score in April 2016 (0.30). This decreased slightly in August (0.23) and once again during this iteration to 0.20.
Most business owners and small businesses (57.6%) will make preparations for an increase in inflation. To tackle a potential inflation increase business owners and small businesses intend to pass price increases onto their customers (27.5%), cut their margins (14.3%), negotiate harder with suppliers (13.3%) and hold more money in the bank (11.9%).
Since last year’s referendum outcome, sterling has taken a noticeable hit. On 7 October 2016 the pound fell from $1.26 to $1.18 against the dollar within a few minutes, sparking fears of monetary instability. However, Bank of Cyprus UK found that 65.2% of the UK’s small businesses felt a fall in sterling would either have no impact on them or will cause no need to adapt their businesses.
When it comes to last year’s fall in sterling, only 9% of owner managed and small businesses said they had to cut their margins to adapt to the fall in currency value and few say they will hold more money in the bank (8.9%). The fall in sterling also caused very few owner managed and small businesses to negotiate harder with suppliers (6.9%) and very few have passed on price increases to their customers (7.7%).
Commenting on the research findings, Nick Fahy, chief executive at Bank of Cyprus UK, said:
“The decision to leave the EU has resulted in turbulence and uncertainty, so we should take comfort in the response from the UK’s small business community. Despite the present challenges and those ahead, entrepreneurs and small businesses are laying the groundwork for fluctuations in inflation and shaking-off any chills from the fall in sterling.
“Running a business is rewarding, but it can be challenging. It’s important that the UK’s entrepreneurs and small businesses continue to enjoy a supportive business environment and have the best conditions so they can continue to flourish.”