Inflationary pressure poses a huge risk to Yorkshire businesses in the coming months, with many preparing themselves for the highest level of inflation in 30 years.
According to accountancy and business advisory firm, BDO LLP, half of regional businesses have already accounted for a 6-10% level of inflation this year – in line with the current 6.2% rate, which is the highest it’s been since the 1990s.
The Office of Budget Responsibility (OBR) has suggested that the fallout from the war in Ukraine could push inflation to a 40-year high of 8.7% in the final three months of 2022, with The Bank of England also warning that inflation could hit double digits. BDO’s Rethinking the Economy survey has revealed that nearly half of Yorkshire companies are planning to seek additional finance in order to counteract rising inflation, despite taking into account the record increase.
Terry Jones, (pictured) partner and head of BDO in Yorkshire and the North East, commented: “For months, the inflation screw has steadily been tightening for businesses in the region, as the rate has increased to record levels. Businesses have acted accordingly by factoring in higher levels of inflation this year – one of the only regions in the UK to have done so.
“Despite being prepared on paper, businesses still need to be flexible and act swiftly for the remainder of 2022 – whether that’s through additional financing, raising the price of goods or services, or working alongside lenders and suppliers to agree more beneficial agreement terms.
“With the pressures of a global pandemic lingering on, regional businesses are having to overcome more hurdles, as significant global uncertainty and soaring costs are putting future growth ambitions under real threat in 2022. Unsurprisingly, more than a third of businesses admit that they intend to pass on those additional costs to customers.”
The Rethinking the Economy survey showed that one of the greatest challenges facing regional businesses over the next six months is the rising cost of living (30%), whether that’s higher business costs, or reduced revenues as a result of customers cutting spending. However, 35% of companies in Yorkshire are choosing to increase the wages of employees in an effort to tackle the cost of living.
That level of optimism is also reflected in the amount of time it will take regional businesses to return to pre-pandemic revenues, with 43% stating that they expect earnings to recover within this calendar year.
Jones added: “It’s really promising to see real grit and determination – a true hallmark of Yorkshire businesses - as companies explore innovative ways to overcome the latest challenges and continue on their path towards growth, whether that’s domestically or through potential overseas expansion, albeit tempered by global geopolitical uncertainty.
“Agile decision-making will continue to be vital over the coming months, to ensure businesses give themselves the right financial headroom to focus on areas such as cash generation, cost control and managing working capital efficiently.”