UK firms look to pause staff pay rises as consumer spending wanes, survey finds
Consumers spending less because of a cost-of-living squeeze is a big concern for more than half of medium-sized business leaders, BDO found.
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Your support makes all the difference.Businesses are being forced to consider selling off property and putting staff pay rises on pause in efforts to cut costs as consumer spending declines, according to a survey.
Consumers spending less because of a cost-of-living squeeze is a big concern for more than half of medium-sized business leaders, accountancy and business advisory firm BDO found.
Nearly two thirds of retail and wholesale businesses said it is a significant concern for them, the latest survey of 500 mid-sized companies revealed.
It comes after homeware retail giant Wilko collapsed into administration last week, exposing the challenges facing the sector worsened by the Covid-19 pandemic and tighter consumer budgets in the face of higher energy costs and mortgage rates.
The chain had tried to shore up cash by making savings in recent years but said “time had run out” to rescue the business.
The failure, which puts some 12,000 jobs at risk, follows stationery chain Paperchase falling into administration earlier this year.
Meanwhile, manufacturers are also worried about a decline in spending as they see order volumes slow, higher materials and energy prices, and complex customs rules following Brexit changes, BDO’s survey showed.
It follows the sector seeing its joint-worst performance for three years in July as activity continues to shrink on the back of weakening exports, according to the closely watched S&P Global and CIPS survey.
To compensate for lower revenues, BDO’s poll found that businesses were trying to scale back spending, with more than a third hoping to reduce overheads.
This includes downsizing premises or selling off property to manage rising mortgage payments, as interest rates stand at the highest rate for 15 years.
A further 30% said they were considering pausing salary increases or bonuses they typically award for promotions or performance reviews, rising to 38% of hospitality and leisure firms and 36% of retailers and wholesalers.
The mounting pressures facing businesses in an inflationary and high interest rate environment are not getting any easier to navigate
Some 37% of businesses surveyed said they were prioritising sourcing new debt financing, such as bank loans and private credit of fresh investment for the business, such as through private equity.
Nevertheless, more than a fifth of mid-sized firms said they were focusing on overseas expansion in the next six months as they look to new markets to cash in on consumer demand.
Richard Austin, a partner at BDO, said: “The mounting pressures facing businesses in an inflationary and high interest rate environment are not getting any easier to navigate.
“It’s worrying to see businesses fighting to cut costs when they want to prioritise expansion in the UK and overseas instead.
“These businesses are the UK’s economic engine. Targeted funding, new trade opportunities and support to resolve persistent labour and skills shortages will all go a long way in helping them achieve their true growth potential.”