Small businesses under pressure from energy costs

The overwhelming majority of SMEs reported feeling the strain of rising expenses, with only 15% saying they had not faced cost hikes over the past six months. As households brace for a 9% rise in Ofgem’s energy price cap this winter, small businesses are already grappling with escalating energy bills. The poll showed that nearly one-third (28%) of businesses identified energy costs as their most significant price increase, while 23% said higher business supply costs were their greatest concern.

Price hikes anticipated in the months ahead

As operational costs continue to climb, nearly half (45%) of small businesses expected to raise their prices within the next six months. Of those, nearly 40% anticipated an increase of more than 5%, while 20% predicted a jump of over 10%.

Mark Di-Toro, Director at iwoca, commented: “The UK’s 5.6 million SMEs have had a tough few years, and despite falling inflation over the past year, the business environment remains challenging. More and more companies expect their prices to rise faster than inflation, and this could have major knock-on effects for the economy.”

Oli Perron is the founder of Lunch’d, a catering company, delivering meals to businesses across London, Birmingham, Manchester, and in Bournemouth in Dorset. Despite interest rates failing, the cost of doing business is still significantly higher than it was, and Lunch’d isn’t feeling the benefits yet.

“During the pandemic and up until the end of 2023, the primary expenses for our business have been rising and rising. It’s true that inflation and interest rates have been coming down, but our core expenses on everything from food costs, rent, energy, wages to fuel are still way higher than they used to be.

“From 2021 to 2023, food costs skyrocketed by 27% and our energy went up by over 200%. Despite marginally lower interest rates, which in reality still means prices going up and up, we are still feeling massive cost pressures every day.

“As a business we were walking a tightrope to balance costs. It seems to me that only businesses offering exclusive high-end luxury or really budget options can benefit from this lower inflation. Companies in the middle like us were caught in a perfect storm. Thankfully our premium food offering meant, unlike a lot of catering companies, we weren't squeezed out of the market."

“As a business that prioritises local, seasonal produce to keep costs manageable, the trend we saw during Covid of more affordable fuel and more seasonal produce felt key to sustaining our industry. But the cost of doing this is incredibly high now. We try to do everything we can to retain great talent and ensure our chefs are paid fairly too – we won’t compromise on this, but it means cost pressures are still high."

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