Supply chain pressures to lead to Christmas price hikes, firms warn

Smaller businesses are preparing to hike prices over the Christmas period as they continue to feel the strain of rising costs and supply chain disruption.

Around four in five mid-sized firms said they are expecting supply-chain strains, rising costs and Covid-19 restrictions to hamper trading in the next month, according to a report.

A third said they were planning to hike their prices, according to a survey of 500 businesses by accountancy firm BDO.

Fashion giant Next of price rises in September and said staff shortages could impact its deliveries in the run-up to Christmas.

Businesses were battered by the combination of rising utility and fuel costs during autumn and bosses now say they expect this to impact consumers in the period ahead.

Ed Dwan, partner at BDO, said: “Following a year of disruption, many businesses will have been hoping for a strong finish to 2021 and a fresh start for 2022.

“The harsh reality is that continued supply chain issues, rising energy prices and increasing costs means that many are taking further drastic measures to stay afloat.”

Around 32 per cent of mid-sized firms in the retail and wholesale sector said they will increase prices, while 32 per cent of businesses overall said they plan to cut the number of products or services they offer as a direct result of inflation.

Manufacturing businesses are bearing the brunt of the pressures, with around 39 per cent planning to decrease the number of products on offer and a similar number set to increase costs of their products and services.

Bosses have warned that the return of Covid-19 restrictions could place further strain on the availability of goods and services.

Helen Dickinson, chief executive of the British Retail Consortium, said: “There are clear signs that the cost pressures from rising transport costs, higher energy and commodity prices, and ongoing labour shortages are starting to filter through to consumer prices. A survey of retailers showed that three in five expected prices to go by the end of the year.

“Government can reduce some of these cost pressures by finding a long-term solution to the current labour shortages, particularly for HGV drivers, which are pushing up costs across the supply chain.”

William Bain, head of trade policy at the British Chambers of Commerce, told The Independent supply chain issues “are not abating”.

“Our Quarterly Economic Survey for Q3 2021 found nearly half (47 per cent) of companies expected their prices to rise by the winter. Production and manufacturing firms (64 per cent) and retailers/wholesalers (65 per cent) were the most likely to expect price rises,” Mr Bain said.

He added: “A large majority of firms attempting to recruit had experienced problems with supply of staff. Raw material costs are a huge concern for companies as are continued high prices for shipping container hire, which have increased seven or eight-fold in many cases over the last 18 months or so.

“Further developments related to the onset of the omicron variant of Covid-19 also have the potential to lead to further strains in the coming months, such as staff absences due to self-isolation or a reduction in flights due to reduced international travel.”

Around 45 per cent of firms said that shoring up their domestic and international supply chains was a priority for the next three months.

Businesses said inflationary pressures were likely to restrict growth in the longer term with just over a quarter of firms saying inflation and higher interest rates were likely to have the biggest impact on their business in the next year.

In a separate report by small business network Simply Business, one in five small firms said they did not expect to survive 2022 without a bumper Christmas this year and more than a quarter were not confident about their business's chances this December.