The highest rates of inflation seen in a generation are having a huge impact on businesses across Wales, which are having to raise their prices in response, according to new research from Grant Thornton UK LLP.
In its latest Business Outlook Tracker* survey, Grant Thornton found that 40% of Welsh mid-market firms have already raised their prices, with a further 50% expecting to need to do so in the future.
More than half (60%) of the businesses who have already, or have plans in place to, increase prices, expect the increase to remain in place for at least 12 months, while 20% anticipate that it will be permanent.
The research also found that rising costs, wage inflation and energy bills has impacted confidence in the Welsh mid-market’s ability to grow its income levels. The latest Tracker recorded a fall in revenue growth optimism of -6 percentage points (pp) compared to February.
These challenges have also led to changes in investment priorities, with investment expectations for several areas monitored by the Tracker falling when compared to earlier in the year. The most significant drops were in employee reward and benefits (-16pp compared to the last Tracker) and growth in international markets (-2pp).
Alistair Wardell, partner at Grant Thornton UK LLP and head of its restructuring team in the South of England and Wales, said:
“With inflation running at 9% and predicted to rise even further, the Welsh mid-market is currently operating in uncharted territory. While the Chancellor’s response may slow the spiralling rate rises somewhat, most businesses are still facing a perfect storm of problems, which now also includes the prospect of a recession looming on the horizon.
“Thanks to this range of issues, every sector is going to be facing a squeeze from one direction or another. However, Welsh hospitality and tourism businesses may find themselves particularly vulnerable, exposed as they are to the energy price issues, potential for lower consumer demand and also specific concerns such as the reversal of the VAT reduction for hospitality.
“Many are therefore seriously considering when they need to increase prices in order to maintain acceptable profitability and cashflow levels – if they haven’t done so already. Acting quickly and decisively to manage rising inflation rates could mean passing on increased prices to the consumer, but management teams also need to be looking at every aspect of their business to identify potential savings.”
