UK businesses are planning to raise their prices at an unprecedented pace over the coming 12 months, amid substantial rises in energy and wage costs, according to the latest IHS Markit UK Business Outlook.
A net balance of +62% of private sector firms plan to increase their charges, up from +56% in October and the highest recorded in the survey’s 12-and-a-half-year history.
Firms are also expecting severe cost pressures over the next 12 months, with salary demands leading to record- high staff cost projections (+83%).
While there was some variation in inflation expectations, the latest data showed that firms across all regions expect to be hit by substantial cost pressures over the coming year. Notably though, staff cost forecasts were highest in London (+85%) and the South East (+84%), reflecting the possibility that faster activity growth will translate into higher salary demands.
Despite an overall uplift, profit forecasts (+24%) were much weaker in February compared to the first half of 2021, when growth expectations were similarly strong. The underperformance reflected concerns that firms will be unable to fully pass their expenses onto customers and that sales will be tempered by the cost of living crisis.
The latest Business Outlook survey was largely conducted prior to the invasion of Ukraine on 24 February, which could heighten inflation expectations further amid sharp increases in energy and food prices.
At the same time, nearly two-thirds of businesses (64%) expect business activity to grow during the year ahead, while only 8% predict a decline. Following the relaxation of Omicron-led COVID-19 restrictions at the end of January, overall confidence was up to +56% from +45% in October, supporting plans for output, hiring and investment in new technologies.
There was a sharp regional divide in business confidence during February. London and the South East (both +63%) recorded the highest expectations for business activity, while the South West was in third place (+59%). By contrast, the East Midlands (+33%) and Scotland (+34%) saw the weakest projections for output.
The results suggest that businesses in the South of England feel more secure about future sales, amid fears that the rising cost of living will hit spending among low-income households. Profitability forecasts were subsequently diverse, with the strongest projections in London (+46%) compared with neutral predictions across the East of England (+1%) and East Midlands (+0%).
The IHS Markit UK Business Outlook also found that, despite more severe economic conditions, companies are continuing to investment in business technology. Cloud firmly remains a top priority for investment over the next 12 months (56%, a +1% rise from 2021). Meanwhile, cybersecurity (47%; 46% in 2021) and data analytics (45%; 46% in 2021) also remain key areas of focus among service providers for the year ahead.
For the first time, investment in 3D printing was also analysed, with 13% of companies planning to expand their capabilities here.
