Prices to rise further as businesses respond to cash flow pressure

A new survey from the NI Chamber suggests 88 per cent of manufacturers are preparing to put prices up with 95 per cent citing high raw material costs.
A new survey from the NI Chamber suggests 88 per cent of manufacturers are preparing to put prices up with 95 per cent citing high raw material costs.

SEVERE cost pressures for Northern Ireland businesses is set to drive prices up further over the coming months, a new report suggests.

A record 77 per cent of firms in the north expect to put up their prices in the next three months, according to the latest quarterly economic survey (QES) from NI Chamber and business services group BDO

The situation is more acute for manufacturers. The survey found 88 per cent are preparing to increase their prices, with 95 per cent citing the rising cost of raw materials as the key factor.

The research was carried out in the week before and the immediate days after Russia’s invasion of Ukraine, which sent energy prices soaring in early March.

It found while the north’s economy recovered relatively well from the pandemic, many firms are facing significant cash flow problems in early 2022.

Economist Maureen O’Reilly, who analysed the survey responses, described the first quarter (Q1) deterioration in the cash flow position for manufacturers in particular as “very concerning”.

The survey also found firms are holding off on capital investment programmes in the face of surging costs.

Brian Murphy from BDO said businesses had been insulated by significant cash balances in recent times, which has boosted their recovery.

But he said those cash reserves have been depleted as companies sought to avoid putting their prices up.

He said some firms are now faced with prioritising survival over capital investment.

“Some of these businesses have been facing raw material hikes that are well beyond the 7-10 per cent rates of inflation that have been talked about.

“If inflation was showing signs of abating, then it wouldn’t give too much rise for concern,” he said.

“But unfortunately the inflationary pressures look as if they’re going to continue at apace and there’s no real visibility as to when they will start to come down and level off.”

He said the number of businesses forced to put their prices up will potentially accelerate.

“The cash flow, which has been a strength of late, is now moving into this dangerous territory and that’s where we can potentially see problems arising for the business community.”

The survey revealed 50 per cent of respondents still operating below capacity in Q1, with confidence taking a dip in early 2022.

The survey found the north’s services sector continued to perform well in Q1 2022, with expectations of employment growth at a record high. But, there are also mounting cash flow issues in the sector, with a record 86 per cent of services businesses expecting to put their prices up.

A major issue for Northern Ireland businesses remains staff, with 89 per cent of respondents experiencing recruitment difficulties in Q1 2021.

The chief executive of NI Chamber, Ann McGregor, said while the majority of businesses were trading positively in early 2022, there is concern the recovery is slowing down.

“Today’s report is further evidence of the need for the UK Treasury to revisit some of the opportunities to support businesses which were missed in the Chancellor’s Spring Statement, including postponing the National Insurance increase.”