Perfect Storm for SMEs as Rising Inflation Is Set to Add £7bn to Costs

 

Rising inflation could add £6.8bn to small and medium-sized enterprises (SME) operating costs in 2017, according to a new report this week from insurance giant RSA Group.

 

The research shows 2017 is likely to be a tough year for SMEs, with stagnant revenues meaning increased costs will eat into profit margins and thus hinder growth. The report shows almost 14 per cent of SMEs expect their revenue to shrink over the next year, representing approximately £252bn.

 

This year’s predicted 2.7 per cent rise in inflation will increase the cost of imports and is likely to slow down consumer spending. In addition to these inflationary pressures, UK businesses also face the challenges of sterling depreciation, pension auto-enrolment, the apprenticeship levy, and business rate increases.

Storm City

2.8m SMEs (51 per cent) do not think the Government is doing enough to support them and help them grow.

 

The report also states that the Government should think about means by which it can mitigate the negative effects that increasing business costs could have on the economy. Russell White, schemes and deals director of commercial risk solutions at RSA commented: “The government has a role to play by considering ways through which it can mitigate the negative effects that increasing business costs could have on the economy. Protecting [the UK’s] small businesses is absolutely central to securing wider economic growth.”

 

RCA said SMEs could strengthen their position by regularly reviewing their business cash flow and access to capital. Speaking to financial advisors could also help them find different channels to boost growth and weather potential any financial shocks.

 

White added, “The business environment is expected to become much harsher in the coming year, and it’s crucial that businesses plan ahead to ensure that they are prepared.”

 

In addition, around 2.1m (39 per cent) of the UK’s 5.4m SMEs see rising business costs as a top three risk to their business.

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