Around 71% of middle market businesses are ready to face the recession although only a third expect the economy to improve in the next six months
Almost one in four UK businesses are feeling resilient despite the exceptionally tough economic outlook, according to the latest economic barometer research by RSM.
The percentage of firms that expect the economy to improve over the next six months stood at 38%, indicating that some are expecting a relatively short recession.
However, while businesses seem confident in their ability to navigate the economic headwinds, nearly half (44%) stated they felt rising energy prices presented the biggest risk to their business.
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This was followed by the increased cost of finance and rising staffing costs, which were equally viewed as the second largest risk posed (30%).
The combination of the cost of living crisis and geopolitical uncertainty has also meant many businesses have suffered with supply chain disruptions, with over a quarter (28%) citing this as a serious threat.
In addition, record inflation has forced 44% of businesses to increase their prices, and 24% said they were unable to pass additional costs on to their customers.
Simon Hart, lead international partner, RSM UK said: ‘Record inflation, energy price shocks, the Brexit aftermath, supply chain issues and the pandemic have all combined to create a perfect storm for middle market businesses in recent months.
‘Some sectors, such as retail and manufacturing, are undoubtedly battle scarred by months of increased costs and barriers to trade, but others, particularly those that are not so reliant on energy, such as financial services, legal and fintech, are coping well and even spotting the opportunities in the current tough economic climate.’
The report found that many middle market businesses are demonstrating resilience and fighting back with a range of measures to stay afloat.
These include more than a third (39%) improving energy efficiency, around a third enhancing operational efficiency (32%) and seeking cheaper supplies (31%), while one in four (26%) have reduced their capital expenditure.
Nearly half (42%) of businesses said they were facing higher labour costs, with 31% considering making redundancies to reduce staff costs.
Jason Stone, head of special situations, mergers and acquisitions, RSM UK said: ‘The question of financing and investment options will be a consideration for many businesses next year. Stronger companies will capitalise on the opportunity, by making strategic acquisitions for future growth.
‘Companies with a more worrying debt structure should seek advice early to avoid the spectre of breaching financing obligations and potentially ceasing to trade.
‘Both types of companies are increasingly aware that growth does not necessarily require conventional financing, with many companies open to alternative financing methods and equity investments.’
High inflation has forced 25% of businesses to postpone or scale back investments, although there are still signs of positivity with 19% accelerating or increasing new investments.
In relation to government support, around 62% said they felt the government was not doing enough to support businesses in the current climate. They called for the energy price cap to be extended and reductions in business rates.
Hart added: ‘In times of economic challenge and uncertainty, the role of policy makers, both fiscal and monetary, is to create the environment of, if not stability, consistency so that business leaders can plan and act accordingly.
‘With a period of constrained liquidity, higher inflation and interest rates, and austerity, the need for appropriate and consistent government communication, actions and engagement with businesses is arguably more important than ever and equally as important as policies it enacts.’
The research was carried out by The Harris Poll for RSM and surveyed 413 senior executives from UK middle market businesses with a turnover between £10m and £750m.
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