Leading SME expert reacts to inflation rise announced by ONS

May 18th 2022

Joanne Regan, Regional Managing Partner at Azets in the North East, the UK’s largest regional accountancy firm and business advisor to SMEs, said:

“My message to businesses is to be brave and have upfront conversations with customers to increase prices to absorb rising costs – in the short to medium term we are finding anecdotally that margins are holding up.

“With businesses dealing with B2B there are customers accepting of price increases in the main as they in turn are passing the increases on.

“However, any price rise is far less forgiving in the B2C sector, where retail and hospitality in particular will be first impacted with reduced discretionary spending by squeezed families.

“We may also see a dash for value as households understandably move away from higher value goods for strong value propositions.

“Whilst it is of little comfort to SMEs and the public, much of the inflationary pressures are resulting from higher household energy prices and fuel costs rather than anything fundamentally unsound in the economy.

“It may be a case of holding our nerve until inflation peaks at around 10% or above before starting to fall next year.

“We also know that many companies pared back to the bone during the pandemic, which subsequently translated into record efficiencies, meaning there may be leeway to retain current pricing without compromising profits as there is a cushion which wasn’t there before.

“Whilst inflation is clearly a pressing issue, the main issue for businesses is the labour market and the lack of skilled workers is clipping wings of the expansion plans of many companies because they cannot scale up without comprising quality.

“In some ways, this is more of a danger to growth than inflation.”