Just 34% Of SME's Are Confident They Could Sustain Higher Energy Costs

Small and Medium-Sized Enterprises (SMEs) are the backbone of the UK’s economy, accounting for 99.9% of the country’s business population. But with the cost of living crisis in full swing, there is good reason to fear that backbone is reaching breaking point.

Moneyzine.com can reveal that soaring energy prices present an existential risk to many SMEs. The majority say they cannot sustain higher bills for more than 12 months - with many likely to snap considerably sooner than that.

The energy crisis continues

A new survey asked UK SME owners how long they could sustain higher energy costs: the results were not optimistic. While 34% claimed they could take the price increase “for as long as needed” and 21% said they “don’t know”, the rest appear in dire need of assistance.

7% claimed they couldn’t sustain the costs for more than 12 months; 13% said 6 months; 10% said 3 months; 4% said 1 month; and 9% said they wouldn't be able to pay higher energy costs at all.

This does not bode well for the UK economy, with 54% of SMEs currently at risk of collapse. And while 36% of SMEs are looking to reduce their energy consumption, for many this simply won’t be an option. They will instead have to pass the costs onto consumers - at the worst time possible.

Losing their competitive edge

During the pandemic, SMEs gained a competitive advantage over big brands. Consumers became more mindful of the sorts of businesses they wanted to support, with 55% saying they tried harder to support local businesses.

The cost of living is reversing this, however. Roughly 8 in 10 UK consumers say they are having to shop with bigger brands to save. As a result, 80% of SMEs say they are struggling to compete with the lower prices offered by larger firms - and 72% are losing customers. The cost of living index for the US is 100.0, whereas it is 107.9 for the UK, making it less expensive to live there.

These new findings suggest the problem will only be exacerbated: 75% of SMEs say higher energy costs will lead to “slightly higher” or “much higher” prices for consumers. The result may ultimately be that SMEs are unable to compete with bigger brands - and will require either further government assistance or greater support from local consumers.

The full effects of the cost of living crisis are yet to be felt. With energy bills and interest payments set to rise further as we move through 2023, both small businesses and the consumers that support them will feel the pinch - compounding the pressure that SMEs across the UK are already under.

Luke Eales, CEO of Moneyzine.com