Nearly 80 per cent of smaller British firms report pressure to increase prices because of higher labour and raw-material costs, according to research from the skills charity Enginuity summarised in this week’s business reporting, with almost three-quarters expecting to pass those costs on to customers.
The survey’s harder finding sits behind the prices. Two-thirds of firms are not operating at full capacity for the second consecutive year, and employers have now cut staffing for 24 consecutive months — the longest employment downturn since the early 2000s. Private-sector activity overall continues to grow, which means the headline economy and the typical smaller firm are having genuinely different years: order books exist, but margins, capacity and confidence do not support hiring into them.
That distinction matters for how to read the next quarter. Large companies can absorb a cost shock across divisions, renegotiate supply contracts or borrow through it. A smaller manufacturer, haulier or food producer faces the same diesel, energy and wage bills with thinner cash, more expensive credit and customers who are themselves cutting back — which is why price rises arrive even when owners fear losing the order, and why vacancies return slowly even where work is available.
Business groups are pressing the chancellor ahead of the 28 October budget for relief on costs and stronger action on late payment, the quiet killer of small-firm cash flow. Late payment deserves emphasis in any morning briefing: a profitable order paid ninety days late can still sink the supplier who funded the materials, wages and fuel in the meantime, and no interest-rate decision fixes it.
The practical conclusion for customers is to expect the pass-through the survey predicts — three-quarters of firms planning it cannot all be absorbed silently — and for policymakers to judge any budget by two tests: whether it lowers a named cost smaller firms actually pay, and whether it makes large customers pay them on time. Growth figures alone will not answer either question.
There is a quieter implication for workers in the staffing figure. Twenty-four months of shrinking headcounts without a recession means smaller firms have been absorbing the cost shock with people — fewer hours, frozen posts, owners working the floor — a reservoir of strain that does not appear in growth statistics until it appears in closures. The survey’s capacity numbers suggest that reservoir is not refilling yet.
