Small businesses feeling the pinch as inflation rises

The UK's small businesses are feeling the effects of rising costs, business groups are warning.

The latest inflation figures released this week show CPI at 2.7% in April, up from 2.3% in March - representing the highest rate since September 2013.

Stephen Martin, director general of the Institute of Directors (IoD), said: "Higher inflation is squeezing margins on businesses and the obvious knock-on effect is higher prices. The next Government must resist the urge to pile additional costs on business through increased regulation, particularly as they continue to come to terms with recently introduced measures such as the Apprenticeship Levy, an increase in the minimum wage, and the immigration skills charge."

The Federation of Small Businesses (FSB) has also warned that SMEs are struggling under the weight of higher business costs. Mike Cherry, FSB national chairman, said: "The number of small firms reporting an increase in operating costs is at its highest since 2013. That means it's harder for them to invest, expand and create jobs. If costs continue to rise, it will undoubtedly have an impact on growth across the country."

The latest inflation figures suggest that small businesses "need support in their battle against surging costs … sooner rather than later", said Cherry.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said that the current rate of inflation is likely to be "transitory in nature, with little evidence that higher price growth is becoming entrenched in higher pay growth".

This tallies with new research published this week by CIPD, the professional HR body. It is warning that workers face a squeeze on their earnings as employers anticipate awarding median pay rises of just 1% in the year ahead. The findings of the latest CIPD/The Adecco Group Labour Market Outlook survey finds that employers' median basic pay expectations in the 12 months to March 2018 have fallen to 1% compared to 1.5% three months ago - lower than at any time during the past three and a half years.

However, the survey also finds that demand for labour remains robust, especially in manufacturing. Gerwyn Davies, CIPD labour market adviser, said: "The good news in this latest survey is that employment confidence remains positive … the bad news is that there is a real risk that a significant proportion of UK workers will see a fall in their living standards as the year progresses, due to a slowdown in basic pay and expectations of inflation increases over the next few months. This could create higher levels of economic insecurity and could have serious implications for consumer spending, which has helped to support economic growth in recent months."

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