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UK SMEs keen to invest but being held back by impact of inflation

  • 66% of firms plan to seek funding for business investment
  • Two-thirds of UK SMEs have been negatively impacted by rising inflation
  • 55% will raise wages to help their employees with the cost-of-living crisis

The cost-of-living crisis has been covered extensively in the media but what has been less comprehensively reported is the rising cost of doing business. The latest independent research* from Close Brothers Asset Finance and Leasing sheds more light on the impact mounting costs are having on businesses.

Starting with some good news, our recent survey of 911 UK SMEs tells us that in spite of the multiple pressures facing them, the appetite for borrowing to invest in growth is the strongest it’s been since we started surveying business owners, with two-thirds of respondents answering ‘yes’ to the question ‘does your business plan to seek funding for business investment in the next 12 months’.

While investment intent is strong, some 40% of firms have missed a business opportunity in the last 12 months due to a lack of available finance. In addition, confidence in the economy has cooled, with 54% of UK SMEs concerned about further economic slow-down. 

Impact of inflation

According to our research, two thirds of businesses have been negatively impacted by rising inflation, and only a third feel the Bank of England’s target of 2% is realistic in today’s high-inflation business environment. A further 46% don’t feel raising interest rates is the right thing to do to help curb inflation (34% ‘yes’; 20% ‘unsure’).

While businesses have been asked not to raise wages, over half (55%) will be doing just that as they try to help their employees keep up with rising costs.

In addition, over three quarters of firms plan to pass additional costs onto customers (27% ‘fully’; 49% ‘partially’) while the remaining 23% have chosen to absorb the costs, which will in turn have an impact on their cash flow. Over four in ten (42%) admitted the increased cost of doing business has caused them cashflow issues

Our view

“Businesses have, for some time now, borne the brunt of both rising costs and inflation along with supply chain problems that have made it difficult to plan – both finances and stock – while trying to meet customer demands" said Neil Davies, CEO of Close Brothers’ Commercial Division.

“But it’s encouraging to see that firms are still keen to invest despite all the challenges they are facing.”

Methodology

*All figures, unless otherwise stated, are from a Censuswide survey conducted in July 2022. The survey canvassed the opinion of 911 SME owners across the UK and Ireland and across several industries on a range of issues affecting their businesses.