Supply chain ยท 6 February 2017

Majority of small business owners plan price increases in response to falling pound

services sector
Rising import costs have caused small business owners to adopt price increases for goods and services

Owners at over half of the UK?s small companies have told consumers to expect price increases over the next year, as new British Chamber of Commerce (BCC) research highlights the impact of currency devaluation on the economy.

The BCC surveyed 1,500 small firm owners to gain an understanding of growth expectations for 2017 in light of the fall in sterling?s value, in decline since the EU referendum in June 2016.

As well as raising prices, almost half of small business owners stated that the recent devaluation of the pound had impacted on profitability and domestic sales.

Future outlook was also low among survey respondents, with almost seven in ten expecting the costs of running their business to rise in the coming year.

The BCC findings followed fresh Bank of England forecasts of an inflation rise to two per cent for 2017, jumping from its previous prediction of 1.8 per cent in November 2016.

Commenting on the research, Dr Adam Marshall, BCC director general, said that the decline in sterling was the ?main tangible impact? on small businesses since the Brexit vote.

?While inflation rates aren?t high by historical standards, they are still putting increasing pressure on companies. Rising costs are squeezing margins, and forcing many firms to increase the prices of their goods and services,? he said in a statement.

Devaluation of national currency typically results in greater opportunities in exporting, as domestic goods become cheaper internationally. The BCC survey revealed mixed results for small firms trading overseas.

A quarter of respondents reported a positive impact on exports, while 22 per cent witnessed a negative effect. Marshall added that currency fluctuations had been a ?double-edged sword? for business owners relying on exports.

One sector feeling a significant impact of the decline in the pound has been the UK?s hospitality industry.

At the end of 2016, accountancy firm Moore Stephens predicted that 5,570 restaurants had at least a 30 per cent chance of folding within three years, following price increases in food and wine imports.

Britain?s small construction firms have also felt the hit of currency fluctuations. The Federation of Master Builders revealed in January that 70 per cent of firms in the sector had struggled to adjust to price increases on imports, as a quarter of all materials used by construction companies are brought in from outside the UK.

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.