Half of SMEs haven’t felt benefits of falling inflation, new research finds

• While inflation has fallen closer to the Bank of England’s 2% target, half of all SMEs say this hasn’t benefited them,
• Half of SMEs say the cost of doing business is still too high, with increased costs for energy and business supplies the biggest concerns.
• Two-fifths expect their prices will increase by more than 5% in the next six months - higher than the current rate of inflation
  

Nearly half (49%) of small businesses say they have not benefited from falling inflation this year, according to a new poll commissioned by iwoca — one of Europe’s largest SME lenders.

The research, which comes ahead of the ONS's latest inflation statistics, also reveals that the cost of doing business is too high for half (50%) of the UK’s 5.6 million small and medium-sized companies.

Small firms feeling the heat from energy bills
Rising costs have hit the vast majority of small businesses, with just 15% of SMEs saying that they have not experienced cost increases over the last six months.

While households brace for a 9% rise in Ofgem’s energy price cap this winter, small businesses are already feeling the heat. According to iwoca’s polling, nearly a third (28%) of companies cite soaring energy bills as their biggest cost increase, while a quarter (23%) point to business supplies being more expensive.

‍Rising prices expected over the coming months
With costs going up, nearly half (45%) of small businesses predict that they will have to raise their prices over the next six months. 

Nearly two-fifths (37%) expect their prices will increase by more than 5%, and one in five (20%) predict a spike of more than 10%.

‍Mark Di-Toro, Director at iwoca, commented: “The UK’s 5.6 million SMEs have had a tough few years, and despite falling inflation over the past year, the business environment remains challenging. More and more companies expect their prices to rise faster than inflation, and this could have major knock-on effects for the economy.”

‍Oli Perron is the founder of Lunch’d, a catering company, delivering meals to businesses across London, Birmingham, Manchester, Bournemouth and Dorset. Despite interest rates failing, the cost of doing business is still significantly higher than it was, and Lunch’d isn’t feeling the benefits yet.

“During the pandemic and up until the end of 2023, the primary expenses for our business have been rising and rising. It’s true that inflation and interest rates have been coming down, but our core expenses on everything from food costs, rent, energy, wages to fuel are still way higher than they used to be.

From 2021 to 2023, food costs skyrocketed by 27% and our energy went up by over 200%. Despite marginally lower interest rates, in reality prices haven’t come down yet, they are lagging indicators which hospitality are all feeling.

As a business we were walking a tightrope to balance costs. It seems to me that only businesses offering exclusive high-end luxury or really budget options can benefit from this lower inflation. Every hospitality company was caught in the perfect storm, our premium offering meant once the economy finally bounced back we were able to trade and actually expand as the ‘middle of the road’ offerings had disappeared out the market, including smaller contract caterers as working from home became the new normal.

As a business that prioritises local, seasonal produce to keep costs manageable, the trend we saw during Covid of more seasonal produce felt key to sustaining our industry. We try to do everything we can to retain great talent and ensure our chefs are paid fairly too – we won’t compromise on this, but it means cost pressures are still high."