Exclusive: Spectre of rising costs threatens to derail London recovery

Businesses across London are under threat from the spectre of soaring costs.

Almost half of firms in the capital are suffering from a sharp rise in energy, raw material and fuel costs, which is squeezing their margins “on several fronts”, the London Chamber of Commerce (LCCI) has warned.

Richard Burge, chief executive of the LCCI, said: “Firms are reporting rising costs of energy, fuel and raw materials.  Their margins are under threat, they’re also mindful of rising inflation.”

According to research carried out by the LCCI and shared exclusively with City A.M., 46 per cent of London businesses are experiencing a sharp rise in energy costs.

47 per cent are having to deal with an uptick in fuel prices, while 42 per cent are paying more for raw materials.

The findings reinforce fears the UK economy is headed for a period of “stagflation” in which economic growth is weak as a result of businesses cutting back supply due to higher prices making production less profitable.

Energy and fuel prices have shot up on a resurgence in global demand triggered by economies around the world pushing to get back to normal levels of activity as they emerge from curbs to quash the spread of Covid-19.

Meanwhile, delays at shipping ports have generated supply chain bottlenecks, which has put upward pressure on raw material and goods prices. Fierce competition among businesses to get their hands on inputs is intensifying inflationary pressures.

A looming 1.25 percentage point hike in employers’ national insurance contributions will add further weight to cost burdens. This is being compounded by firms having to jack pay to attract talent amid ongoing worker shortages.

Firms’ “margins are under threat, they’re also mindful of rising inflation, and it is little surprise to see consideration being given to increasing the price of their goods and services.  These are very real threats to our economic recovery from COVID-19,” Burge said.

Research from accountant firm BDO released this week found around a quarter of businesses are pulling normal services due to a paucity of staff. Reduced stock caused by supply chain breakdowns is also disruption normal business operations.