Businesses in the South West will urgently need a comprehensive support package if Covid-19 restrictions continue amid a “perfect storm” of inflation, rising costs and the effects of the Omicron variant.
British Chambers of Commerce South West (BCCSW) – which represents thousands of firms in the region – says companies are facing unprecedented pressure from inflation.
These pressures are combined with poor cash flow stemming from the threat of the Covid-19 Omicron variant, especially in hospitality and leisure – key sectors in the South West.
The warning is underpinned by the findings of the latest Quarterly Economic Survey by British Chambers of Commerce – the UK’s largest independent survey of business sentiment and a leading indicator of UK GDP growth.
It has shown the recovery stalled in the fourth quarter of 2021, with the survey of almost 5,500 firms showing 45% reporting increased domestic sales in Q4, down from 47% in Q3.
Stuart Elford, Chair of BCCSW, said: “Our region is at the heart of a perfect storm as we enter a new year, normally a time of optimism. The restrictions caused by the rapid spread of the Omicron variant have stalled cash flow while costs and inflation continue to rise.
“There’s a nervousness about the potential for interest rate rises at a time when costs are being forced up further by changes to the rules on imports and exports of goods to the EU.
“The hospitality and leisure sectors are at the eye of this storm. They have already suffered the reverse of the VAT reduction while cash flow is at its leanest.
“We must reassure them that a comprehensive package of support is pending should restrictions continue or tighten, so we can support jobs, incomes and communities.”
According to the results of the survey, prior to the surge in Omicron infections, hotels and catering had been most likely to report increased domestic sales (55%). This represented the beginning of a potential recovery as the sector was also the most likely to report decreased sales throughout the rest of the pandemic.
94% reported decreased sales and cash flow at the start of the pandemic in Q2 2020. Worryingly, a similar decline is now possible in the face of the Omicron variant and the implementation of Plan B which led to new restrictions for some.
Some 58% of firms expect their prices to increase in the next three months, the highest on record. Only 1% expected a decrease.
For firms overall, 31% reported an increase to cash flow, while 46% reported no change and 23% reported a decrease.
Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said: “The record rise in price pressures suggests that a substantial inflationary surge is likely in the coming months. Rising raw material costs, higher energy prices and the reversal of the VAT reduction for hospitality are likely to push inflation above 6% by April.
“Rising inflation is likely to weaken the UK’s growth prospects this year by eroding consumers’ spending power and squeezing firms’ profit margins and ability to invest.”
Director General of the British Chambers of Commerce, Shevaun Haviland, said: “Many businesses were facing a struggle to improve their cash flow and raise investment even before the Omicron variant surged and Plan B was imposed.
“Supply chain disruption is continuing to persist, inflation is soaring, and rising energy costs are presenting firms with a huge headache.
“With companies now having to grapple with the impact of Omicron and further changes to the rules on imports and exports of goods to the EU, there are significant hurdles for businesses in the months ahead.
“The Government has listened to our previous calls for support, and it must do all it can to steady the ship and steer the economy through these uncertain times. If the current restrictions persist or are tightened further then a more comprehensive support package that matches the scale of any new measures, will need to be put in place.”