Is The Cost-of-Living Crisis a Threat for Business?

When the cost of living crisis is quoted, it always seems to be regarding the appeal of a location or to warn about the perceived value of relocating. However, in recent months it has become the barometer for things as everyday as groceries, mortgages, petrol, energy bills and much more besides.

Several factors have contributed to the current crisis many are experiencing at present. Spiralling costs of raw materials, issues affecting imports from Brexit, rising energy prices and political turmoil across the world have all come together to create a perfect storm of uncertainty and limit business recovery.

PayPal recently highlighted something interesting regarding this in their ‘Build Business Resilience’ report. They state around a quarter of businesses in the UK are ignoring their finances simply because they don’t want to know how bad things are.

The survey highlighted that those that did actually have a handle on their finances said they were more confident.

Although the immediate cost-of-living crisis, with the lack of consumer spending and increasing fuel prices is seen as the biggest threat, other challenges include maintaining a steady cash flow (29%), managing their own mental health (18%), and coping with the increase in cost of raw materials (17%).

Other results from PayPal’s survey include:

• Three quarters (78%) of small businesses cite the immediate cost-of-living to be the biggest threat to their business over the next year.
• A quarter of small businesses are ignoring the financial health of their business because they’re worried what further scrutiny might uncover.
• One in ten (12%) business owners do not expect to be in business within the year, with a further 15% unsure of their business’ future.
• However, one in five said the last two years have had a positive impact on their ability to manage their finances.
• Over a quarter (27%) feel back in control of their own business after experiencing uncertainty and one in five (21%) feel more empowered as a business owner since improving their knowledge of their business’ finances.

The main takeaway of this survey seems to be anxiety over the cost of materials, although reading further in suggests that this can be mitigated if businesses are bold enough to be able to increase their prices.

Is there a solution?

There is an overarching feeling that this crisis is here to stay, but economists have other ideas, for example, Ben Jones, Lead Economist at the Confederation of British Industry (CBI), Lead Economist, described GDP data as “volatile” at the moment.

“This is in part due to the impact of the Jubilee bank holidays, and this noise will continue to obscure the true state of the economy over the next few months. In reality, CBI surveys and real-time data point to subdued economic momentum,” he said.

“The priority of the next prime minister must be getting the economy growing again. Tax policy is an important part of this, but we need tax changes that drive investment rather than fuel inflation.

“Yet growth policy is about more than this and concerns the policies of virtually every department. Only a broad plan can be effective.”

This suggests that there is a way out of this crisis. Let’s just hope that this is all before too many businesses feel the pinch too keenly.