UK businesses plan price increases as Budget drives up costs

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The number of businesses planning to raise prices in the coming months has jumped sharply as increases in the UK Budget in tax and wage costs caused confidence to “slump”, the British Chambers of Commerce has warned. 

About 55 per cent of companies said they were planning to increase prices in the coming three months, up from 39 per cent in the third quarter, the lobby group’s survey of almost 5,000 businesses found. 

The expected price rises will fuel concerns that Budget measures will underpin the UK’s resilient inflation.

Concerns over tax levels also hit their highest level since 2017, the BCC found, following chancellor Rachel Reeves’ decision to lift employers’ national insurance contributions by £25bn in the October Budget.

“Businesses’ confidence has slumped in a pressure cooker of rising costs and taxes,” said Shevaun Haviland, director-general of the BCC. “Firms of all shapes and sizes are telling us the national insurance hike is particularly damaging.” 

The government has come under heavy fire from business since the Budget, as bosses bemoan higher payments for employers’ national insurance, as well as increases in the national living wage. Subdued confidence has coincided with weak GDP readings, as the Bank of England estimates the economy failed to grow in the final quarter of 2024 despite a strong start to the year. 

The proportion of companies planning to increase prices was equal to levels last seen at the beginning of 2023, when official inflation was still more than 10 per cent.

Rising labour costs were the biggest reason given by companies planning to increase prices, with 75 per cent of respondents raising the issue, up from 66 per cent in the third quarter. The issue was most significant for the hospitality sector, as well as transport and logistics, it found. 

About 63 per cent of businesses said that tax, including national insurance, was a concern in the wake of the Budget, the highest level since 2017. Confidence, meanwhile, has slipped to its lowest level since the aftermath of former prime minister Liz Truss’s mini-Budget in autumn 2022. 

Just 49 per cent of respondents expect sales to increase over the next 12 months, down from 56 per cent in the third quarter, with confidence lowest in retail and hospitality. Nearly a quarter of companies say they have cut back investment plans, up from 18 per cent in the third quarter, although 56 per cent say their plans are unchanged.

The Bank of England opted to keep borrowing costs steady at 4.75 per cent in its final meeting of 2024, as the central bank continued to monitor the impact of the Budget on inflation prospects. The majority of rate-setters expressed concern that recent increases in wages and prices had “added to the risk of inflation persistence”.

The BoE warned of “significant uncertainty around how the economy might respond to higher overall costs of employment” as it warned that “most indicators of UK near-term activity have declined”.

The meeting followed data that showed UK inflation rose to 2.6 per cent in November, from 2.3 per cent in October.

The BCC survey was conducted between November 11 and December 9, collecting data from more than 4,800 businesses, more than 90 per cent of which were small or medium-sized enterprises. 

“Faced with rising costs, our survey paints a difficult picture and shows businesses are having to make some very difficult decisions,” said David Bharier, head of research at the BCC. 

“Many tell us they expect to push up prices and cut back on investment and we expect this to lead to a low to no-growth economic climate.”

The Treasury said: “We delivered a once-in-a-parliament Budget to wipe the slate clean and deliver the stability businesses so desperately need.”

It added: “This is just the start of our Plan for Change, which will unlock investment, get Britain building via planning reform, and employ a modern Industrial Strategy to deliver the certainty and stability businesses need to invest in the UK’s growing and high-potential sectors.”