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Inflation: Six in 10 UK firms to pass higher costs to customers

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·Finance Reporter, Yahoo Finance UK
·2-min read
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UK businesses Workers adjust a consignment of freshly galvanised street lamps inside the factory of Corbetts The Galvanizers in Telford, Britain, June 28, 2022. REUTERS/Phil Noble
Inflation: Six-in-10 UK businesses expected to pass higher costs to customers. Photo: Phil Noble/Reuters

Confidence among British business leaders has dropped to its lowest since at least 2009 as inflation worries worsen, but are still ahead of their European counterparts, according to an index of optimism.

Accenture and S&P Global said their net balance measuring whether UK companies expect activity to increase fell to 28% last month from 56% in February.

The majority of companies expect profits will fall — a first in the survey’s history. Six in 10 firms expected to pass higher costs to customers.

Read more: Company insolvencies jump 40% in June as firms struggle with costs

The survey uses the degree of optimism or pessimism with which companies responded to each question to calculate a net percentage balance, where a positive figure shows a rise in confidence and a negative figure shows a fall.

While UK business confidence fell to a joint record low in June, it remained the highest in Europe, and above the global trend.

A surge in inflation, which reached the highest level in four decades in the UK, is the main driver of the bleaker outlook.

Inflation in the UK is at record high levels
Inflation in the UK is at record high levels. Chart: Yahoo

“Inflation and a cloud of economic uncertainty have understandably knocked business confidence. Whilst some predict lower profits and are cutting back on research and development, it is worth noting that the more confident sectors are continuing to sustainably invest in new products,” Matt Prebble, strategy & consulting lead, UK & Ireland at Accenture, said.

The survey also revealed a sharp regional divide in business confidence. Businesses in the South East continue to feel the most secure and expect to see the sharpest rise in employment over the next 12 months (+34%).

However, optimism in other English regions is on the rise — the West Midlands (+39%) and Yorkshire & the Humber (+29%) moved to become the second and third most optimistic regions for activity, ahead of London (+30%).

Read more: UK savers lost over £1,000 to record high inflation

Not all regions are feeling the same buoyancy, with notably pessimistic profit expectations for the North East (-16%), South West (-17%), and in particular Northern Ireland (-35%).

"Over the past few years, UK business leaders have proven resilient in the face of constant change which may explain their optimism compared to other countries. It is this mindset to make transformational change where it is needed most, invest in talent and new technologies that will put them in a strong position to take market share when the current turbulence passes," Prebble added.

Watch: What is a recession and how do we spot one?

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