More than two-thirds of Northern SMEs expect inflation hangover to be worse than COVID or Brexit

– 69% of SMEs in the North of England believe high inflation will have the biggest impact on their long-term business growth, compared with COVID-19 (18%) or Brexit (8%)

– 16% of smaller businesses in the region plan to increase salaries and benefits in the coming months, while 12% intend to offer staff increased hours

– There may be bad news in store for some workers, with 19% looking at reducing employee hours (19%), not paying bonuses (12%), cutting pay (9%), and not paying salary increases (8%)

More than two-thirds (69%) of Northern firms say that high inflation and the cost-of-living crisis will have the biggest effect on their long-term business growth, compared with only 18% who expect COVID-19 to be the most impactful, and 8% who believe Brexit will be the key affecting factor.

Rising prices (43%) are seen as the biggest challenge for businesses in the region over the next 12 months, but helping employees cope with the cost-of-living crisis is also a major concern for 23% of firms.

The possibility of a recession (25%) and the UK’s political instability (12%) are also seen as major challenges for businesses in the North over the coming year.

A mixed bag of responses to rising inflation

Unsurprisingly, cutting costs and raising prices are the most popular means of offsetting high inflation over the coming months. More than a third (34%) of SMEs WorkLife engaged in the North plan to increase the cost of their products and services, while 33% are looking to source cheaper products and services from suppliers.

Elsewhere, almost a quarter (21%) of senior SME decision-makers in the region are putting their plans to invest in the business on hold in the coming months, while 12% are planning to scrap plans altogether. Ending office use (14%) and downsizing the business to give up some office space (13%) are part of the plans of a sizeable minority.

Encouragingly, employees’ needs are high on the list for SMEs. One in six (16%) smaller businesses in the North plan to increase salaries and benefits, while 12% intend to offer staff increased hours. But there may be bad news in store for some workers, with 19% of respondents looking at reducing employee hours, not paying bonuses (12%), reducing pay (9%), and not paying salary increases (8%).

Niamh McLaughlin, Managing Director at WorkLife by OpenMoney commented: “After two years of uncertainty brought about by the pandemic, the cost-of-living crisis has created yet another hurdle for Northern SMEs to overcome. But despite deep concerns decision makers have over these issues, once again they have risen to the challenge and are adapting to overcome their impact.

“Although it’s concerning to see the threat of redundancy and pay cuts lingering for some workers, it’s encouraging to see the number of firms who have focused their response to rising inflation and bills on employee needs, rather than simply trying to cut back costs or claw back the additional outlay.

“Offering targeted rewards and support now could have a significant impact on long-term motivation and loyalty, especially for those firms whose operating costs will be hardest hit and may not be able to afford pay increases or bonuses.”

WorkLife’s Small Business Monitor is based on research carried out by 3Gem among 250 senior financial and HR decision makers in SME companies with 5 – 250 employees across the North East, North West and Yorkshire & Humberside. Fieldwork for the Summer report took place between 17-26 August 2022.

For the full copy of the Small Business Monitor, please email [email protected]