Manufacturing costs rise disproportionately in SME inflation index

Creeping inflation is increasing operating costs disproportionately for regional small businesses, data released by Barclays shows.

Basic costs for SME’s have increased by 3.2 per cent in the last year, according to Barclays’ Small Business Cost Index (SBCI).

The Index, compiled by Barclays with the Centre for Economics and Business Research, tracks inflation developments and is calculated based on the annual cost change of a typical basket of goods and services associated with the average small business, including utilities and rent costs. Costs increased by 3.2 per cent over the last year, from 1.1 per cent in February 2016.

 The poll found two thirds of senior decision makers would increase their prices if inflation rises, though a fifth of these businesses admit they are afraid to increase their prices.

 Although business owners believe rising utility costs have the greatest impact on their business, it is materials such as basic metals and chemicals that are the largest contributor to inflation, rising by 6.8 per cent in the last year having exerted downward pressure on SME inflation last year when global oil prices were falling.

Manufacturers had the steepest increase in business costs, at 5.7 per cent - the highest reading since 2009 - and were directly impacted by rising costs of physical inputs which make up almost half the total cost of the basket of goods faced by SMEs in this sector.

SME’s in Northern Ireland and Wales experienced the steepest cost rises over the last year, rising to 3.6 per cent and 3.5 per cent respectively, impacted by the nations’ reliance on manufacturing and construction.

Ian Rand, CEO of Barclays Business Banking, said: “With both consumers and businesses continuing to feel the squeeze, it is more important than ever for SME’s to have a plan in place to manage the impact of inflationary pressures.

“As overall UK inflation has risen, so too have the costs faced by SME’s themselves. While many SME’s will regrettably feel they have no other alternative but to consider raising their prices, it’s important they review the areas where their bottom line is most affected, buffer the inflation impact by reviewing every day running costs, and consider other areas to help drive business growth such as exploring opportunities overseas.”