Supply chain costs surge for UK business as Middle East disruption continues
UK businesses are under growing strain as supply chain costs surge, with nearly three quarters (72%) of business leaders reporting increases in the past year – double the level seen over the previous two years (36%), according to RSM’s Supply Chain Integrity Survey.
Almost a third of businesses said they recovered from price shocks within three months (29%), while a further 29% recovered between three to six months later. But for 15% of businesses it took over six months, and over a quarter (26%) are still in recovery mode. The findings highlight mounting pressure on margins and underscore the critical role of monitoring supply chain risk and resilience planning as firms face ongoing geopolitical disruption.
RSM UK’s head of sustainability and ESG, Rich Hall, comments: “Profit margins are already squeezed by recent economic challenges, meaning if we hit a recession, any further cost increases will be difficult for businesses to absorb. These are exceptionally difficult times for UK business leaders who are currently battling against acute disruption, in part due to the ongoing conflict in Iran.
“Whether UK businesses survive will largely depend on their supply chain resilience plan. Understanding potential threats in the supply chains and effective monitoring, with clear KPIs to assess the ability to withstand future shocks, will be key.”
In addition to costs increasing over a quarter of businesses (29%) experienced non-cyber related supply outages, or supplier failure (28%), while more than a quarter (26%) suffered a financial loss and 24% suffered quality failure. Despite the extensive range of risks supply chains currently face, over a third (36%) of those surveyed admitted their supply chain strategy needs updating.
Thomas Pugh, chief economist at RSM UK added: “Today’s headline GDP figure shows 0.1% growth in May, but we expect growth will slow sharply across the second half of the year. Input price inflation has surged to 8.7% in May from just 0.7% before the conflict, while higher energy prices mean real household incomes will do little more than stagnate this year.
“The risk is that firms are unable to pass those surging input costs on, as they did in 2022 when the economy was resurgent as it exited the pandemic, given the weaker demand backdrop. This would further squeeze margins and could lead to greater corporate distress in the latter half of the year.
“What’s more, shipping flows through the Strait of Hormuz are once again disrupted as the recent peace deal in the Middle East fails, prompting oil and gas prices to rise sharply as a result. Even if a new ceasefire deal is agreed, inflation will peak only a little under 3.5% later this year, as energy bills rise and higher wholesale agricultural prices work their way through supply chains.”