How Will The Cost Of Living Crisis Impact Your Small Business?

The cost of living crisis is primarily caused by the joint challenges of elevated inflation and stagnant wage growth. As inflation outpaces increases in wages and benefits, individuals find themselves with diminished purchasing power for their essential supplies.

Inflation is the gauge of the pace at which prices are escalating. An annual inflation rate of 4% signifies that an item priced at £1.00 last year would now cost £1.04. Similarly, an item that previously cost £10.00 would now be £10.40, and so forth.

Several factors contribute to the surge in prices, these include:

Energy Market Turbulence

Since the commencement of 2021, the demand for oil and gas has surged as countries progressively ease pandemic-induced lockdowns. This heightened demand and supply uncertainties arising from the Ukraine conflict have led to a surge in global energy prices. The subsequent escalation in energy company expenses translates to amplified costs for both domestic and business energy consumers.

Reduced Government Support

The revised Energy Bills Discount Scheme offers reduced support to businesses in comparison to the Energy Bills Relief Scheme. Many small businesses are facing difficulties due to reduced financial aid and increased bills after the new scheme started in April. Experts predict that around 370,000 small businesses may need to downsize, restructure, or even close operations.

Shortages of Goods and Supply Disruptions

The Russian invasion of Ukraine is having a substantial influence on global consumer price inflation hikes due to supply disruptions. These surging gas and electricity bills play a pivotal role in the overarching crisis. Statistics from the Office for National Statistics (ONS) reveal that approximately half of the CPIH inflation in April can be attributed to the wholesale price surge of gas.

The consumer prices index stands as the most comprehensive inflation measure, encompassing all categories of household expenditure along with the entire spectrum of homeownership costs and living payments, including council tax.

To illustrate the extent of year-on-year energy price increases, consider that CPIH surged by 5.7% over the 12 months leading up to March 2023.

While the rising cost of inflation is often depicted as a challenge for households, it’s important to recognize that elevated inflation impacts everyone, including entrepreneurs. For business owners, this translates to potential increases in expenditure on materials, products, and stock. Furthermore, it introduces the possibility of having to raise employee wages to offset the increased cost of living.

Despite earlier predictions from the financial markets and experts indicating a possible recession in 2023, it appears that this outcome might be averted. The economy is projected to contract by 0.2%, suggesting a marginal downturn.

The latest data on the potential avoidance of a recession in the UK is attributed to the 0.1% growth witnessed between October and December 2022 in comparison to the previous quarter. A recession is officially defined as two consecutive quarters of declining GDP (Gross Domestic Product), which serves as a gauge for a country’s economic output encompassing the market value of its goods and services.

No. Decreasing inflation doesn’t equate to declining electricity and gas prices. Once gas and electricity prices have experienced an upsurge, it’s uncommon for them to revert to lower levels. Diminishing inflation simply signifies that price increments occur at a slower rate compared to prior trends.

To mitigate the impact of rising prices, wages must keep pace with inflation. However, this is absent in numerous sectors, contributing significantly to the surge in strikes observed over the past year.

For small business owners, this challenge means prices can feel like an onslaught from all directions—operating costs are spiking, employees require higher wages, yet raising prices might reduce customer interest.

However, envision a scenario where prices did descend. This could usher in deflation, accompanied by its array of predicaments. While the current benefits of reduced energy and food costs are apparent, widespread price decreases might discourage spending on consumer goods. Despite possessing greater purchasing power, individuals might defer purchases with the expectation of even steeper price declines.

This, in turn, could result in diminished earnings for employers, potentially leading to job cuts, elevated interest rates, and, ultimately, recession.

Business energy costs will always be a huge part of your business’s outgoings which is why it is so important to save money where possible. With our expertise and knowledge, we can secure a business energy deal that best suits your business needs.

Our energy experts compare prices from all major suppliers in the UK. Additionally, we manage over 20,000 electric meters and offer special prices for your business energy bills whether you are renewing or switching. Contact us now to compare your business energy prices.