Inflationary pressures, rising interest rates and high energy costs, coupled with ongoing supply chain issues are causing Yorkshire businesses to reassess their investment plans and restructure operations, according to Grant Thornton’s Business Outlook Tracker.
The company surveyed mid market business leaders in October 2022 and found that, the number of companies feeling optimistic about their revenue growth fell over 20% from October with pessimism its highest since lockdown.
Many businesses are having to secure additional finance to work through the escalating costs facing the market, with 30% already having secured further funding and 38% planning to do so.
It also found that in the face of mounting pressures, 20% of respondents have already restructured their operations, with a further 40% having plans to do so.
The survey also recorded lower levels of optimism from respondents on their business’ funding position – dropping significantly (-42 percentage points) compared to August 2022, to just 42%.
The strain on funding has also led to a considerable drop in investment expectations across all areas monitored by the Tracker. The most significant drops compared to the last round in August 2022 were seen in technology (-39pp), plant, machinery and new buildings (-31pp) and employee rewards and benefits (-21pp). There was also a -17pp drop in the number of businesses planning to increase investment in both skills development and growth in international markets.
But investment looks to be being directed to areas that will have the most impact on reducing costs. Over two thirds (68%) of respondents have already invested, or are planning to invest, in productivity, efficiency and automation.
In the face of increasing costs and ongoing changes to government fiscal policy, the number of businesses optimistic about the outlook of the UK economy has also plummeted -32pp, compared to August 2022.
Andy Wood, Yorkshire Managing Partner at Grant Thornton UK LLP, said: “Businesses across the country are facing incredible cost pressures from all sides. The combination of input cost price increases, high energy costs and rising interest rates, are seeing businesses faced with increases from 5% to as much as 100% in some cases, when combined with the added strain of ongoing supply chain shortages in some areas. The severity of the environment is clear, with the majority of those surveyed either planning to restructure their operations, or already having done so.
“There isn’t one solution to fix these issues but there are always sensible steps that businesses can take to start to rebuild confidence. For example, reducing the businesses debt level to counter interest rate rises, reducing energy usage and looking for efficiencies in the face of energy cost rises, and considering alterative, cheaper suppliers.
“Many businesses are also reviewing their budgets for the next 6-12 months. It’s vital that these forward plans account for assumptions that may need to be made over this period, such as the impact of the end of energy bill relief, and rising interest costs. Businesses need to be proactive and take action where they can, rather than burying their heads in the sand – its these businesses who will work their way through this challenging environment, and emerge a more resilient, efficient organisation.”
