Business fears over inflation have hit record highs across every sector of the Scottish economy, with 70 per cent of firms saying they expect to raise prices charged to customers within the next three months.
The latest quarterly survey released today by the Scottish Chambers of Commerce (SCC) warns that the country’s economic recovery is faltering as cost pressures mount, adding to the complexity of challenges faced by businesses in the wake of Covid. Despite the easing of pandemic restrictions, the retail and tourism sectors remain particularly vulnerable as consumers are being forced to tighten their belts.
The survey was carried out before yesterday’s latest official data which showed that inflation as measured by the Consumer Price Index (CPI) jumped to a 30-year high of 7% in March, up from 6.2% in February. Inflation is on course to increase further in the coming months.
“Businesses who have weathered the pandemic over the past two years are now seeing problems pile up, one on top of another, as they struggle with longstanding challenges linked to recruitment, planning and managing change and are now being hammered by surging energy prices, inflation and falling consumer spending,” SCC president Stephen Leckie said.
READ MORE: UK economy stalls with concerns that growth may shift into reverse
“Consequently, Scotland’s businesses are making serous adjustments to operating models and grappling with difficult decisions on whether to absorb price rises or pass them onto the consumer. Business finances are also being squeezed by Coronavirus Business Interruption Loan Scheme repayments, rising interest rates and significant business insurance costs.”
Firms operating in financial and business services, construction and manufacturing reported the highest-ever levels of concern about inflation since the SCC survey began in 1990. Levels of worry in tourism, retail and wholesale hit five-year highs.
The tourism and retail sectors were described as “lethargic” with the majority reporting negative trends for sales, cashflow and profitability. The SCC noted that retail footfall remains below pre-pandemic levels because of changes in office work patterns, while the removal of international travel restrictions has cooled the staycation market.
Mr Leckie said these two sectors “desperately” require additional support as their recovery is lagging that in other parts of the economy.
“Both sectors have been amongst the worst hit by the pandemic and the subsequent changes in consumer behaviours,” he said. “They are also the most likely sectors to operate to tight cashflow and profit margins, and that’s why urgent support is needed now.
READ MORE: Firms facing arduous year with rising energy bills and supply chain pressure
“Sustained business support and rethinking the removal of Covid-19 business rates and VAT relief by both the Scottish and UK governments is necessary to facilitate recovery and avoid businesses going to the wall at this critical point in Scotland’s economic recovery.”
The SCC also renewed its call for an energy price cap for small and medium-sized firms similar to that covering household bills. Mr Leckie further lamented the failure by the Chancellor in his spring statement to cancel the increase in National Insurance payments that took effect this month.
Commenting on the results, Fraser of Allander director Mairi Spowage said current data suggests that input prices for businesses are rising at more than double the rate of consumer inflation. It therefore seems likely that cost pressures will continue to feed through to consumer prices as businesses operating on tight margins will have little room for manoeuvre.
“Despite the impact of Omicron in December, the economy is now (as of data in January) back above pre-pandemic levels of growth,” she said. “This milestone in the recovery is of course important, but seems less heartening than it might have done a few months ago given the wider economic conditions.”
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