Survival Of The Biggest? Smaller Firms Struggle Amidst Cost-of-doing-business Crisis

26th July 2023

Smaller firms face tougher business conditions against the backdrop of ongoing cost pressures.

The news that inflation eased slightly in June 2023 looks to be a welcome turning point in the UK's recent inflation story and signals that the Bank of England’s efforts on interest rates are starting to feed through to the economy.

Interest rate rises work by reducing demand in the economy, which on its own does not seem like a particularly good thing given the sluggish rates of growth in the economy overall, but the consensus is that it is a price that needs to be paid in order to bring inflation under control.

Alongside a fall in the headline inflation figure, the Consumer Price Index, there has been a significant easing of producer prices particularly when we compare the growth in prices to the heights seen last summer, with certain producer prices even falling in the latest estimates.

The latest Producer Price Index, which estimates changes in the prices of goods bought and sold by UK manufacturers, showed that output prices rose by just 0.1% in the year to June whilst input prices actually fell by 2.7%. The service producer price index was 4.8% in Q2 of this year, and whilst it remains fairly high, it has slowed in three consecutive quarters since its high of 6.2% in Q3 of last year.

Despite all of this, inflation and energy costs remain chief among business concerns, but both factors are continually being cited less by firms in Scotland as their main concern. Increasingly though, firms are concerned about falling demand for goods and services and interest rates with some notable divergences between large and small firms.

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