Small and medium-sized businesses grapple with ‘a hat trick’ | Manufacturing sector

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The British Army’s more than one million small and medium-sized businesses are stockpiling raw materials and ordering components six months in advance to overcome supply shortages that are preventing them from meeting customer demands.

As construction costs hit new records and import prices rise in the wake of the fall in the pound, companies have reported that much of their cash is spent on securing raw materials and basic components needed to supply customers.

Simon Gray, chief business officer of accountancy body ICAEW, said companies were suffering from “a hat-trick” which forced them to limit production.

“Companies report that things are so bad that they cannot plan for the future. There is a loss of confidence and uncertainty changes their behavior, forcing them to take no risks and reduce their investments”,

Business groups have urged the Prime Minister to agree a bailout to support businesses plagued by rising energy and fuel costs, wage inflation and soaring fuel prices imported goods and raw materials.

Diesel prices have soared to over £2 in many areas, driving up transport costs, while the pound’s 10% fall this year has pushed up import prices.

Brexit trade restrictions have also deterred businesses from exporting to the EU and made it more difficult to import goods from the continent, according to a report published last week by the Resolution Foundation.

The manufacturer’s organization Make UK said its members reported widespread stockpiling to secure increasingly scarce supplies from countries such as China and to protect against the prospect of even higher prices later in the year.

“Our recent reports have revealed that cash investments and expansion plans are on hold as more funds are blocked to secure supplies,” said the lobby group’s senior economist Fhaheen Khan.

The warning came after the CBI reported a slump in private sector activity in the UK that appeared to justify concerns that Britain is heading into a recession in the fall as high prices squeeze stocks. disposable income and discourage household spending.

The CBI said the slowdown was broad-based across all sectors, with consumer services hardest hit (-41%), marking the sector’s steepest fall since February 2021.

Looking ahead, he said private sector activity is expected to decline over the next three months to -3%, where a negative number indicates contraction.

CBI Chief Economist Alpesh Paleja said: “With the post-pandemic recovery severely tested by still strong cost pressures, private sector activity has stalled.”

Gray said companies place orders for equipment and materials six months in advance to secure supplies, tying up cash that would otherwise be used to invest.

“Companies are ordering earlier because if they don’t they won’t have anything to sell in six months,” he said.

The Institute of Directors said businesses cite the UK’s uncertain economic outlook as their top concern, followed by the fallout from Brexit, which has severely hampered exports and imports from the continent.

Martin McTague, national president of the Federation of Small Businesses, said consumers got help but businesses did not during the cost of living crisis.

“It really does look like a scary time for many thousands of small businesses,” he said. “The cost of a liter of petrol or diesel is just one very obvious example of the price pressures small businesses face. But it’s not just the fuel – it’s the energy, the raw materials, the insurance, the staff costs, the rents, the components – it’s in all areas.

Rishi Sunak said last month he would add £15billion to his support package, including a £650 check to 8million low-income households. But he rejected calls to offer new grants to businesses.

Inflation hit 9.1% in May and is expected to rise further before peaking at around 11% in October, according to the Bank of England.

The central bank raised its key rate to 1.25% earlier this month, its highest level since January 2009.

Interest rates must be raised “quickly and decisively” to prevent the surge in inflation hitting most of the world from taking root, says the central bank’s apex body, the Bank for Settlements international (BIS).

The Swiss-based BIS gave its support to the wave of interest rate hikes in developed countries and emerging markets and said it was essential to plan for even higher borrowing costs for the rest of the year in response to inflationary pressures.

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Speaking after his annual general meeting, where leading central bankers met to discuss their current struggles and one of the most turbulent starts to the year in financial market history BIS Chief Executive Agustín Carstens said: “The key for central banks is to act quickly and decisively before inflation takes hold.

Carstens, Mexico’s former central bank chief, said the focus was on action in the coming months.

The BIS thinks a soft landing for the economy – where rates rise without triggering a recession – is still possible, but has acknowledged it is a difficult situation.

“If this tightening generates massive losses, generates massive asset corrections, and it contaminates consumption, investment and employment – ​​of course, that is a more difficult scenario.”

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