Chambers Wales South East, South West and Mid has revealed the impact of rising costs on businesses in Wales following the British Chamber of Commerce’s (BCC) latest UK growth forecast.
The BCC has downgraded its expectations for UK economic growth in 2022 to 3.6%, less than half the growth of 7.5% recorded last year. The downgrade reflects a deteriorating outlook for consumer spending and a weaker than expected rebound in business investment amid soaring inflation and major tax rises, as well as the impact of global shocks including Russia’s invasion of Ukraine.
The downgraded projections for the UK economy highlight the critical challenges facing business communities and households against the backdrop of the growing uncertainty surrounding both the UK and global economy.
Chambers Wales South East, South West and Mid has recorded similar business concerns to the factors responsible for the downgraded forecast through its Business Outlook and Quarterly Economic Surveys in Q1.
Responses from Welsh Chamber members have highlighted the effect of rising costs in four areas: people, utilities, raw materials and transport.
A recurring issue reported by businesses in Wales is the difficulty to recruit suitable staff and currently 85% of businesses are experiencing difficulties. Often driven by a skills deficit, more recently businesses have noted remuneration as an issue in both recruiting and retaining staff.
65% of businesses cited that they were under pressure to raise prices from remuneration to compete with others in their sector in order to recruit and retain employees. However, hikes in inflation challenge the sustainability of continuing to increase remuneration when overall business costs have also increased.
Already a contributing factor in the cost-of-living crisis for individuals, the sharp increase in gas and electricity has also hiked up businesses’ overall costs and 61% of businesses face pressure to raise prices due to this. With 59% of businesses in Wales on a fixed rate tariff and a further 18% on a variable rate, the rise is a particular challenge for energy intensive industries such as manufacturing and healthcare.
The prices of raw materials are of huge concern to Welsh businesses. At the outset of 2022, 55% of businesses in Wales stated that they were under pressure to raise prices as a result of rising costs, and this has since increased to over 80%. This has particularly weighty consequences for the manufacturing sector where it is necessary to purchase materials such as metals and wood.
Businesses have been impacted by rising costs linked to transport in different ways. Increases in fuel prices led to over 40% of businesses listing fuel costs as an area of pressure, whether for fuel reliant industries such as logistics and transport or deterring employees from commuting or travelling far from their locality.
Fuel has also been a contributing factor to fluctuations in freight costs. Close to 40% of businesses who export and import are concerned with the cost of shipping containers, leading to increased costs of transporting goods at a time when businesses are also adapting to new customs regulations and trade agreements.
Paul Slevin, President of Chambers Wales South East, South West and Mid, said: “To mitigate against rising costs, businesses in Wales have introduced several measures, demonstrating their resilience and agility despite facing ongoing challenges in recent years.
“We have found that over two thirds of businesses expect the prices of their goods and services to increase in the next quarter as a result of rising costs. It is positive to see that no businesses surveyed thought they would cease trading because of costs and are taking a variety of courses of action to be able to continue even if growth may be slower than anticipated.
“However, we must be mindful of the wider impact of rising costs and the cost-of-living crisis on individuals and the knock-on effect this has on their overall financial and mental health and wellbeing, and subsequently the impact on businesses and their productivity.”