Crisis-hit Scots firms to put up prices - but closures still expected

As business confidence plunged to a post-pandemic low as relief packages came to an end, the SCC president Stephen Leckie has warned that the Scottish economy is being "dragged away" from recovery and growth.

It comes as the cost of basics such as milk, cheese and eggs have risen as food prices have soared to 45-year high.

The rise came as official figures revealed a slight dip in overall UK inflation, which measures the overall rate of price rises, to 10.5% in the year to December. That compared to 10.7% in November.

But while petrol and energy costs have eased, it is food prices that have seen the biggest hit, with other basics such as sugar, jam, honey, syrups, and chocolate.

The price of a two pint carton of milk has risen by 50% in a year to £1.38 in December, 2022, sugar is up 43% to £1.03, Cheddar cheese is up 33% to £3.30, a dozen eggs is up 30% to £2.32 and an 800g packet of sliced white bread is up 21% to £1.39.

Food and drink inflation was at 16.8% in December up from 16.4% in November, marking the highest level since September 1977.

Meanwhile new research found that package holidays and flights to popular destinations have soared by an average of 19% in a year.

Research has found that those booking a summer 2023 package holiday between November 1 2022 and January 3 this year would have paid hundreds of pounds more on average than for a summer break in 2022.

The new SCC survey of over 300 small and medium sized businesses across the nation found that 82% of firms indicated that they intend to raise they prices they charge over the next quarter.

Retail and tourism firms had highest proportion of firms indicating future price rises at 77% and 76%.

Staff costs have now overtaken soaring energy prices as the leading cost pressure for firms, with seven in ten reporting increased workforce related costs.

The SCC has called on UK and Scottish Governments to urgently support small and medium-sized business by providing relief packages and a clear economic plan.

Mr Leckie said the end of 2022 turned out to be a "bleak period" for Scottish busineses with all sectors coming under "immense strain" because of upfront costs hitting cashflow and profits.

The UK government's Energy Bill Relief Scheme for businesses taking effect in October ends in March to be replaced by a new 12-month support package called the Energy Bills Discount Scheme from April, 2023, but it comes at a reduced rate.

The SCC warned that the new scheme will see an 85% drop in the financial envelope of support which will "fall short for thousands of Scottish businesses who are seriously struggling".

An SCC source said: "There is a distinct risk to business survivability."

Four in ten reported a rise in cost pressure from energy costs, despite the relief scheme.

The survey also found that more than two in three business reported an increase in cost pressures from labour costs in the last three months of last year, including salaries. Some 61% were hit by price of fuels and 60% on raw material prices.

Mr Leckie said: "Energy bills continue to be a significant cost pressure for firms. While the survey shows that the energy bills relief scheme has helped since it came into effect in October, the lack of further support is a major cause for concern."

He said that while they welcome the 12-month duration of energy bill support, the value was "nowhere near enough and that means for some firms, energy will now be a cost too far".

Mr Leckie said: We would urge the UK Government to revisit the relief package urgently.

"While considerable uncertainty remains, households and businesses will face a further increase in energy costs from April 1, 2023. Given wider economic challenges, this will harm those most in need and further targeted support for those most vulnerable will be necessary."

Cheaper fuel and clothes helped ease the rate of inflation slightly to 10.5% but remains at one of the highest levels for 40 years as the cost of living crisis continues.

The Office for National Statistics (ONS) said a drop in the cost of motor fuels led to the decline in the core consumer prices index (CPI) measure of inflation along with cheaper clothing and footwear, and recreation and culture.

The inflation rate dipped from 10.7% in November and its recent peak of 11.1% in October.

The Prime Minister Rishi Sunak promised to halve the rate of inflation this year as one of the key cornerstones of his plans for the economy.

But the ONS said consumers were still being hit with higher prices in restaurants and hotels, food and non-alcoholic beverages.

Millions of people are struggling with the cost of living which has been rising steadily as Covid restrictions eased and Russia launched its assault on Ukraine.

The slow dip in inflation may not be good news for borrowers, as the Bank of England could continue its programme of interest rate increases to bring inflation to its 2% target.

The Bank of England has been raising interests since December 2021 to quell rising prices and has gone from 0.25% to 3.5%.

Some experts believe the central bank was likely to increase rates by between 0.25% and 0.5% when it holds its next rate-setting meeting in February.

Increasing interest rates is seen as a way to control inflation by raising the costs of borrowing in the belief it will mean people will save more and spend less which usually means that the prices of those things rise more slowly.

Last week, the Bank of England's chief economist Huw Pill said inflation may prove to be more persistent in the UK than in other countries.

A UK government spokesman said: "This Government will always be on the side of business. This is why we are providing them and other non-domestic energy users with an unprecedented £18 billion package of support this winter.

“On top of this, we have pledged to continue energy support from April onwards through our Energy Bills Discount Scheme. This will be at a lower rate to reflect recent price trends and to reduce taxpayer exposure to volatile energy markets.

“A higher level of support will be provided to energy and trade intensive businesses."

A Scottish Government spokesman said: “The Scottish Government is supporting businesses by helping them to cut costs in a number of ways. These include delivering the lowest poundage in the UK for the fifth year in a row, reducing the business rates due and ensuring around 250,000 non-domestic properties in Scotland continue to be liable for a lower property tax than elsewhere in the UK.

“Along with businesses, the Scottish Government has repeatedly called on the UK Government to take urgent action where it holds the key policy levers to do so. This includes a reduction in VAT, targeting support with energy bills at businesses who need it the most and an extension of the Coronavirus Business Interruption Loan Scheme and other loans.”