Budget will force majority of firms to hike prices, survey suggests
A majority of businesses will lift prices in the next year due to the government’s national insurance hike, a new survey suggests, adding to fears that the Budget might stoke inflationary pressures.
Over half of respondents (54 per cent) to Grant Thornton’s business outlook tracker said they will need to pass on higher employment costs to customers through higher prices in 2025.
Schellion Horn, head of economic consulting at Grant Thornton, said this would “put pressure on inflation” and force the Bank of England to keep interest rates higher for longer.
The survey, which included responses from 800 firms in the UK, also showed that a majority (52 per cent) of businesses will reduce hiring, cut jobs or offer lower pay packets to employees.
“Just when there is light at the end of the tunnel, the market is now faced with further cost increases,” Horn said.
Rachel Reeves unveiled a £40bn tax raid in her first Budget, with businesses bearing the brunt of the rise through a £25bn increase in employers’ national insurance.
The Chancellor also upped the minimum wage, piling extra pressure onto corporate balance sheets.
Business groups have sounded the alarm in recent weeks that the measures will force them to cut jobs and hike prices. A similar report from the British Chambers of Commerce, released earlier this week, suggested that 55 per cent of firms expect to hike prices in the next three months.
Economic momentum has also slowed. The UK contracted in October while forecasts from the Bank of England suggest that the economy was stagnant in the final quarter.
With price rises in the pipeline, the Bank will likely be wary about cutting interest rates too fast in the new year despite the slowdown in economic growth.
Andrew Bailey, the Bank’s Governor, insisted that the Bank would take a “gradual” approach to easing policy in December. Financial markets anticipate just two interest rate cuts in 2025.