Scottish businesses risk underestimating inflation rates

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INFLATIONARY pressure poses a huge risk to Scottish businesses in the months ahead, with a significant number unprepared for the highest level of inflation in 30 years.

According to accountancy and business advisory firm BDO LLP, 73% of businesses have seen only 3-5% inflation this year – already well below the current rate of 6.2%. , which is the highest since the 1990s.

The Office of Budget Responsibility (OBR) has suggested the fallout from war in Ukraine could push inflation to a 40-year high of 8.7% in the last three months of 2022, with the Bank of England warning also that inflation could double digits. BDO’s ‘Rethinking the Economy’ survey found that almost half of Scottish businesses plan to seek additional financing to counter rising inflation.

Kevin Lamb, Managing Director of BDO Scotland, commented: “It is very clear that rising inflation is having a profound effect on business in Scotland. Businesses did the right thing and forecast higher levels of inflation this year. However, the forecast is well below the current and expected rate of inflation. As such, businesses need to react quickly and reassess their business plans for the remainder of 2022 to accommodate record increases – whether through additional funding, increased prices for goods or services, or by working alongside lenders and suppliers to agree better terms. terms.”

“When you pair rising inflation with significant global uncertainty, Scottish businesses face even greater pressure after two years hampered by a global pandemic. Unsurprisingly, 63% of companies admit they plan to downsize and impose a hiring ban to help manage rising costs.

The Rethinking the Economy survey showed that one of the biggest challenges facing businesses over the next six months is domestic supply chain disruption (30%), with the increase in cost of living (29%), whether it’s higher business costs or reduced revenue due to reduced customer spending, which is also a significant issue. However, Scottish businesses are responding positively to the crisis, with a quarter of businesses choosing to raise employee wages in a bid to tackle the cost of living.

This level of optimism is also reflected in how long it will take Scottish businesses to return to pre-pandemic revenues, with 73% saying they expect a recovery in profits this calendar year – the highest rate in the UK.

Kevin added: “Despite the plethora of challenges facing Scottish businesses, there is still a real desire to grow revenue over the next six months, as well as looking at potential overseas expansion over the next six months. next year, although this is clearly tempered by global geopolitical uncertainty. .

“Agile data-driven decision-making will continue to be vital over the coming months, to ensure companies give themselves the right financial leeway to focus on areas such as cash generation, cost control and effective management of working capital.”

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