Companies planning to pass on higher input costs

Companies planning to pass on higher input costs

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UK businesses affected by an increase in input prices are planning to pass the costs on to customers, a new survey by ICAEW has found

Of the 781 businesses surveyed, 53% said their prices have increased over the past year, but of those that have, less than half are willing to absorb the costs with 54% planning to offset the rise.

Among the firms intending to offset the increase, 82% of them plan to charge customers more and 48% are looking for cheaper suppliers.

Stephen Ibbotson, director of business at ICAEW, said that, while many firms have sought to protect customers from those rises by absorbing the costs, that was no longer sustainable.

“It is not surprising therefore that more than half of companies are planning to offset the rising costs. UK companies cannot put off decisions that will undermine or hinder the economic progress made in recent years and need to take advantage of new opportunities,” Ibbotson added.

Meanwhile, a separate report by Begbies Traynor found that levels of significant financial distress within the UK’s supply chain rose by 26% on average over the past year.

According to Begbies Traynor’s Red Flag Alert report, due to growing uncertainty surrounding the UK’s future trade links with Europe and rising inflation, more companies have shown increasing signs of stress during the first quarter of the year.

Industrial transportation and logistics businesses experienced the largest increase in significant distress, up 46% year-on-year, the report found. Distress among the wholesale sector rose 16% and the food and beverage manufacturing sector saw a 15% increase.

Julie Palmer, partner at Begbies Traynor, said, “Given the scale of the increases in distress during Q1, it would appear that food suppliers, logistics firms and wholesalers are yet to fully pass on these rising costs to their customers. But it is only a matter of time before we start to see this coming through, especially given the added margin pressures associated with the new National Living Wage.

“Once those costs ultimately feed through to consumers, we’d expect further pressure on sectors exposed to discretionary spending such as retail, bars and restaurants, travel and leisure.”

Meanwhile, executive chairman Ric Traynor warned that suppliers, wholesalers and manufacturers will need to “rapidly invest” to improve their efficiency or renegotiate prices with customers to avoid the risk of falling into more severe financial distress in the coming months.