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More than half of companies are planning to raise prices in the next three months as they face a “pressure cooker of rising costs and taxes”, according to one of the UK’s largest business groups.
The British Chambers of Commerce (BCC) said its survey of nearly 5,000 firms suggested confidence had “slumped”, falling to its lowest level for two years.
Nearly two-thirds told the BCC they were worried about taxes following the Budget, which announced a rise in national insurance contributions (NICs) paid by firms from April.
A Treasury spokesperson said the Budget delivered stability for business and more than half of employers would either see a cut or no change in their NI bills.
Raising prices risks stoking inflation at a time when many people are struggling with the cost of living.
While the rate of inflation – which measures the pace of prices rises – has fallen sharply from record highs in 2022, it rose in both October and November.
The BCC’s survey, which was conducted after the Budget, found that more than half – 55% – of firms expected to raise their prices in the next three months, up from the previous reading of 39%.
Shevaun Haviland, the BCC’s director general, told the BBC that in the face of higher costs “there’s only so many things you can do”.
“You’ve got to think about putting up prices… or you’ve got to take that hit in your margin, which means you have less money to invest in the future, or you’ve got to look at your recruitment and staff costs. So it’s really, really tough.”
A closely-watched survey of the services sector by S&P Global suggested that in December the sector had cut jobs at the fastest pace for nearly four years.
“Faced with subdued demand conditions and hikes to employment costs, many service providers opted to curtail their staff hiring and delay backfilling roles,” said Tim Moore, economics director at S&P Global Market Intelligence
“Nearly one-in-four survey respondents saw an overall decline in their payroll numbers.”
The strength of the UK economy has come under focus following the release of disappointing growth figures just before Christmas.
The latest official data showed the economy had zero growth between July and September, while it contracted during October.
The figures were seen as a blow to the Labour government after it made boosting the economy its top priority.
A separate report from KPMG has forecast that the pace of growth will pick up this year, with the economy growing by 1.7% compared with 0.8% in 2024.
It expects consumers to “ramp up the pace of spending” as household incomes are boosted by stonger pay growth and lower interest rates.
However, KPMG warned the pick-up in growth “could come at a cost of higher and more persistent inflation, as businesses pass on the cost of tax rises”.
‘We’ve had our pockets picked’
Kevin McNamee/Denroy Group
Kevin McNamee said businesses had been “shocked” by the changes to national insurance in the Budget
Businesses have already warned that Budget measures such as the rise in employer NICs, together with the higher National Living Wage, could lead to job cuts and price rises.
Kevin McNamee, chief executive of Denroy Group, a manufacturer of plastic goods based near Belfast that employs 250 people, told the BBC the combined impact of the changes to the minimum wage and national insurance would cost the company “hundreds of thousands of pounds, it’s really significant”.
It was “probably inevitable” the prices on some of their goods would have to rise to try to cover the higher costs, he said.
“The focus now will be on boosting productivity, reducing headcount or certainly not adding to the headcount as the business grows and driving that productivity.”
He added businesses had been “shocked” by the changes to national insurance.
“It’s hard to see how the Budget incentivises businesses to invest to grow, we’ve had our pockets picked to an extent here.”
However, the owner and director of Hays Travel, Dame Irene Hays, told the BBC that she was not seeing a lack of confidence in the travel sector.
Bookings at the firm – which employs about 3,500 people – are up 22% so far this year, she told the Today programme.
Dame Irene said while changes to NI and the national living wage would push up costs, “we’ve been around for 45 years now and we have managed a business through lots of different administrations”.
“There are always changes on costs… and it’s a case of just being very careful and managing those as best we can.”
In the autumn Budget, Chancellor Rachel Reeves announced that employers’ national insurance contributions would rise from 13.8% to 15% from April this year.
She also confirmed that the National Living Wage would increase from £11.44 to £12.21 an hour, again from April.
The BCC collected data from more than 4,800 businesses across the UK between 11 November and 9 December. It said 91% of the firms surveyed were classed as small and medium-sized enterprises, with fewer than 250 employees.
It found 63% of firms were worried about tax. That was the highest level since 2017 when the business group began recording the data.
The BCC said confidence had fallen, with 49% of firms expecting sales to increase over the next year. The business group said this was the lowest level since the aftermath of the mini-budget in late 2022.
“The worrying reverberations of the Budget are clear to see in our survey data,” Ms Haviland said.
“Businesses confidence has slumped in a pressure cooker of rising costs and taxes.”
A Treasury spokesperson said: “We delivered a once-in-a-parliament Budget to wipe the slate clean and deliver the stability businesses so desperately need.
“We have ensured more than half of employers will either see a cut or no change in their National Insurance bills.
“We are bringing back political and financial stability, creating the conditions for economic growth through investment and reform,” the spokesperson added.
