Business confidence is on the up, but are rising electricity prices set to hamper Britain's economic recovery?

posted on 18/09/2013 09:27:56 by Dan O'Sullivan

The manufacturers' organisation has warned that an increase in electricity prices could threaten the recovery

Warning signs: Growing confidence could be scuppered by imminent energy price rises

Britain's SMEs have endured a rough ride in recent years, but if the latest developments are anything to go by it appears the worst could be over.

As the Federation of Small Businesses (FSB) has revealed, the Small Business Index - a measure of confidence among UK SMEs - is now at its highest point since it was first published in 2010. Standing at +33.5, the figure is up from +15.9 in the second quarter of 2013, and has remained on an upward trajectory since the turn of the year.

While the statistics alone are not enough to quantify the strength of the economy, they do suggest the direction in which it is heading. For the first time since 2010 the index has found that more firms are looking to hire staff rather than reduce the size of their workforce - and with spare capacity having fallen, the FSB says an increasing number of SMEs feel positive about growth.

Money talks

Yet despite the promising signs, it's undeniable that obstacles remain, and one of the biggest issues continues to be money - or rather a lack thereof. As FSB national chairman John Allan has said, the government needs to build upon the growing confidence by ensuring small firms have access to the finance they need.

This message has been reiterated countless times since banks adopted a more cautious approach to lending, but it continues to be relevant given that SMEs are still being frustrated in their attempts to secure vital funding.

EEF claims that businesses are becoming increasingly concerned by the cost of energy - so much so that some fear investment in research and development will suffer if electricity prices rise.

And perhaps more worryingly, manufacturers' organisation EEF claims that businesses are becoming increasingly concerned by the cost of energy - so much so that some fear investment in research and development will suffer if electricity prices rise.

Jeopardising the recovery?

With the organisation warning that energy bills could ultimately hamper the economic recovery, its latest review calls for action to make prices more competitive. It also urged the biggest companies to make a long-term commitment to keep the cost of electricity low for energy-intensive industries.

The proposals could be considered ambitious, but it seems they accurately reflect a belief that is widely-held among SMEs - namely that suppliers are set to increase their prices yet again.

As research conducted by Make It Cheaper has found, 94% of small businesses believe energy companies will announce increases in prices over the next year - and with a total of 28% also believing energy is the most unfairly priced overhead, it's clear that gas and electricity bills are causing a major headache for Britain's business owners.

If more definitive links are drawn between rising energy prices and the poor performance of SMEs that are expected to lead the recovery, suppliers could come under further fire as domestic and business customers alike struggle to cope with the increasing costs.

While the recent decision to axe rollover contracts was a step in the right direction, it could prove to be too small a concession if prices continue to increase.

Image credit: Quinn Dombrowski

Dan O'Sullivan

Dan O’Sullivan is Make It Cheaper's Web Content Manager, which means much of his time is dedicated to ensuring we have plenty of online material to help business owners understand the energy, insurance and telecoms industries. With years of experience working alongside SMEs, Dan is committed to making life as easy as possible for smaller firms. You can email Dan at dan.osullivan@makeitcheaper.com

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