Cost of living statistics small businesses can’t ignore in 2023 [Updated]

Even after narrowly dodging a recession, the UK cost of living crisis continues to escalate.

Small businesses are in a precarious position. Bills and overheads are steeper than ever, and customers’ budgets are tightening. The Federation of Small Businesses noted in their quarterly survey that while the confidence of most SMEs was once again on the up in the UK, there are still tough times ahead, and “dark clouds” are expected on the horizon as costs remain high. 

But – there is still hope. What’s essential is to keep up with the trends that are most relevant to your business and your wider industry. 

In this article, we’ve rounded up the most essential stats regarding the cost of living that small businesses simply can’t afford to ignore. While we won’t sugarcoat the grimmer statistics, we will also reveal some of the surprising positives to be found, so it won’t always feel like all is lost. So, buckle up and get ready to equip yourself with the insights you need to weather this storm.

📈 Interest rate rises rose to 4.25% in March: the highest in 14 years

Developments at the Bank Of England led to a confirmed interest rate increase of 4.25% this past March. By August, the Bank of England predicts the rate is intending to continue the rise to a high of 4.6%, before beginning to decrease over the next five years. Any further updates will be announced by the Bank of England on May 11.

The main consideration for small businesses:

The rise in interest rates will mean higher repayment costs, which may affect your cash flow and ability to invest in new projects. A good business continuity plan will help you to decide which costs are the most important to prioritise in these challenging times.

🗞️ The statutory hourly rate rose by 9.7% from £9.50 to £10.42 for adults aged over 23.

The statutory hourly rate in the UK rose on 1 April, providing millions with a little extra in their bank accounts monthly to tackle the cost of living crisis, according to Gov.uk.

The main consideration for small businesses:

The main consideration here will be considering the impact of this change on your labour costs. If you currently employ workers who are paid the statutory hourly rate, they will need to increase their wages to comply with the new rate and check out the best payroll software for small businesses for how to do it.

🗞️ Mortgage approvals hit 14-year low

According to figures from the Bank of England, the number of mortgages being approved to home buyers fell for the fifth month in a row in January.

The main consideration for small businesses:

It’s best to exercise caution when considering locking into a long mortgage right now, particularly with the high-interest rates we’re currently experiencing. With the ongoing economic uncertainty, it may be wise to wait until rates decrease or stabilise before committing to a long-term mortgage.

🗞️UK private rental prices increased 5.0% in the year to May 2023

This is the largest annual percentage change since this UK series began in January 2016.

The main consideration for small businesses:

As a small business owner, you may need to reassess your operations and evaluate whether it is sustainable to continue renting or if alternative options, such as renegotiating your lease term, is more favourable.

🗞️ 83 million job roles will be eliminated in the next four years

In the UK, 83 million job roles will be eliminated in the next four years and more than a fifth (21%) of all jobs will change in the next four years. Changing tech trends such as AI, plus the green transition, will utterly disrupt labour markets, according to new research by the World Economic Forum. 

The main consideration for small businesses:

As a small business owner, it’s crucial to diversify your skills, especially when there’s a threat of jobs and industries being eliminated. Diversifying your skills can help you stay competitive in the market, adapt to changing trends and consumer preferences, increase your versatility and give you a broader perspective on how to run your business effectively. 

Trying new things can lead to innovation and help you stay ahead of the curve in your industry. It’s essential to be open-minded, proactive, and willing to take calculated risks to succeed. A great place to start might be to learn about personal branding.

🗞️ 185.6 million working days were lost due to sickness or injury during 2022

The Office for National Statistics (ONS) said about 185.6 million working days were lost due to sickness or injury during the year, almost 25% more than 2021 and the highest since records began in 1995. The average worker was off for 5.7 days.

The main consideration for small businesses:

The best thing small businesses can do in this situation is to review their sickness absence policies and consider how they can support employees in maintaining good health and well-being, and have contingency plans in place to manage absences and ensure that workloads are managed effectively. 

📉 Inflation eases to 8.9% in March 2023 overall

Finally some good news – inflation rates dropped in March 2023 overall, according to ONS.

The main consideration for small businesses:

This could potentially mean that we are out of the worst of it if you are the kind who likes to think positively – and if that is the case, it might be a good idea to start thinking about your marketing strategies once again to attract more customers and generate sales. This may involve leveraging social media platforms, creating engaging content, and implementing targeted advertising campaigns in anticipation of the comeback of a more normalised consumer market.

Gas and electricity statistics

📉 Gas prices have currently dropped back to 15-month low and ‘sense of normality’

Fortunately, it is not all bad news on the horizon when it comes to gas prices. There has been some news about gas prices being set to drop back to more ‘normal’ prices in summer, to where it was 15 months ago, before inflation hikes and Russia’s invasion of Ukraine.

📈 Electricity prices up 66.7% in the year to March 2023, and currently remain unchanged

Electricity in the UK rose by 66.7% and the increase in price was one of the worst drivers of the annual inflation rate this year. The prices have also had an indirect effect on the prices of goods and services, as well as the closure of many SMEs, as businesses experienced increased costs that could not all be saved by the Energy Bill Relief Scheme (no longer active) or the dramatically reduced Energy Bill Discount Scheme (EBDS) that replaced it.

The inflation rates for gas and electricity showed stability from April to May, as prices increased by 36.2% and 17.3% respectively in the 12-month period ending in May 2023.

These figures mark a significant decrease from the peak inflation rates of 129.4% for gas and 66.7% for electricity observed during the annual inflation rates between January and March 2023.

📈 Brits pay almost double the European average for energy as cost of living crisis bites

Although the government extended its Energy Price Guarantee for home users until June, bringing the average household energy bill to £2,500 a year, the cost is still eye-watering. Now, new research figures from The Underfloor Heating Store has revealed that Brits pay nearly twice the European average per kilowatt of energy.

The main consideration for small businesses:

In our article “How to budget for energy inflation”, we talk about how to budget for energy costs, and identify the areas where small businesses can reduce spending and improve fuel efficiency.

🗞️ Construction firms represent 18% of all insolvencies in March 2023

With a downturn in new housing projects and consumers tightening their belts on home-related spending, 405 building companies have become insolvent this year so far, and a further 6,000 company insolvencies are expected in 2023.

The main consideration for small businesses:

If you own a construction firm, it’s an essential time to manage your cash flow effectively. Try to keep costs and debt low, and ensure you have sufficient reserves to weather this current economic uncertainty. This may involve re-evaluating your business model, diversifying your services, and reducing unnecessary expenses to maintain profitability.

Working on your website and marketing may help to generate some sales – Wix even has a selection of custom website templates designed specifically for the construction industry.

🗞️ 55% of employers struggling to find workers with ‘green’ skills

Over half of business decision makers (55%) are keen to hire new staff who are conscious about climate change, with 57% considering specialised “green” skills as important to their business.

On top of this, 43% are prioritising their company’s sustainability goals, even despite the cost-of-living crisis – with a third seeing this as an opportunity to future-proof their business.

The main consideration for small businesses:

UK small businesses and recruiters can take several steps to embed sustainable practices into their company culture – such as training programmes for their existing staff, collaborations with educational institutions, and/or actively seeking out candidates who have demonstrated a commitment to sustainability – to ensure that they will be well-positioned to thrive in the “green revolution”.

📉 Fuel prices plunge to their cheapest level since Russia’s invasion of Ukraine

As of 16 May 2023, average fuel prices fell to 145p per litre for petrol and 154p for diesel for the first time since Russia’s invasion of Ukraine after reaching record highs last summer, according to Daily Mail.

📉 Motor fuel inflation rates turned negative in March 2023

The price of motor fuel fell by 5.9% in March 2023, according to the latest annual inflation figures from The Office Of National Statistics (ONS). This is the ninth month in a row when transport inflation has fallen from a peak of 15.2% in June 2022, and the lowest rate since November 2020. Automotive fuel sales volumes also rose 0.2%.

The main consideration for small businesses:

While lower fuel prices may provide some relief in terms of cost savings, it is important to remember that inflation rates for other goods and services may still be rising. It’s also unclear how long the trend of falling transport inflation will continue – we’re not out of the woods quite yet. 

Using vehicle tracking systems or fuel cards may be a more viable option than relying on decreases too much in your business. Keep an eye on the economic trends, and be prepared to adjust your pricing and budgeting strategies accordingly in all circumstances.

📈 Rail fares up 5.9% in the year to March 2023

Despite the government price freeze in January and February, rail fares rose once again this year by 5.9% in March, keeping the UK as the frontrunner for most expensive travel costs in Europe.

The main consideration for small businesses:

Small businesses may need to consider alternative modes of transport or find ways to reduce their travel expenses to mitigate the impact of rising rail fares on their profitability. You may also want to consider a four-day working week, or allowing your staff to work from home.

There have been a lot of rapid changes in the retail sector in particular, from general sales falling in March by 0.9% to now picking up again this May. In lieu of all this uncertainty, you may want to check out a few commerce tips on how you can potentially streamline your consumer strategy and feed your consumer’s often fickle appetite.

🗞️ Retail sales volumes rose by 0.3% in May 2023

The month saw a notable 2.7% increase in non-store retail sales volumes, driven by robust sales from online retailers specializing in outdoor-related products and summer clothing.

Retailers have attributed this growth to the favourable weather conditions experienced during the latter half of the month.

The main consideration for small businesses:

Now is a good time to consider leveraging the demand for outdoor-related goods and summer clothing by offering relevant products and promotions

🗞️ 83% of younger retail workers feel they “are being ripped off’ by being paid less than older counterparts

According to Usdaw (the Union of Shop, Distributive and Allied Workers), they found through a survey of 7,500 people that younger workers were in effect being ripped off by being paid as little as £5.28 per hour, which is the national minimum wage for those under 18, for performing the same jobs as older workers.

The main consideration for small businesses:

While it may be tempting to hire a 16-year-old to make a quick saving on labour costs, it is important not to take advantage of their willingness to work for lower pay. The survey findings suggest that younger workers may feel undervalued and ripped off, which leads to low morale and higher staff turnover, and that is bad for any business.

🗞️ Consumer Price Index (CPI) inflation fell to 10.1% in March from 10.4% in February.

The Office for National Statistics (ONS) revealed that Consumer Prices Index (CPI) inflation fell to 10.1% in March from 10.4% in February. The consumer price index measures the overall change in consumer prices based on an average representation of goods and services over time.

The main consideration for small businesses:

Despite the slight decrease in the inflation rate, it’s still eye-wateringly high. Small business owners in the UK need to remain conscious of their customers’ budgets. To retain customers and attract new ones, it would be a good idea to surface deals and savings for them wherever possible, provided these can still be profitable for your business. Such promotions can help to alleviate some of the financial burdens customers may be experiencing, and increase loyalty to your brand.

📈 Inflation rate for food and non-alcoholic beverages rose to 19.2% in March 2023

In the UK, the price of consumer goods and services rose at the fastest rate in four decades in the year to October 2022, and are at a rate now that most big-name supermarkets are coming under investigation for potential ‘profiteering’. For restaurants, cafes and food stalls, rising prices have the potential to deter customers on tight budgets.

The main consideration for small businesses:

As a small UK business owner, it’s more important now than ever to keep a close eye on inflation trends, particularly in the food and beverage sector, to make informed decisions about your pricing and cost control strategies – especially in a way that remains ethical and doesn’t harm the long-term trust of your customers. 

🗞️ New tipping law will put £200 million back into the pockets of hospitality workers each year in 2024

The Employment (Allocation of Tips) Act 2023 received Royal Assent this week and makes it unlawful for businesses to hold back service charges from their employees. 

The main consideration for small businesses:

As a restaurant owner, this should only be seen as an advantage in bringing people back to the industry, as they will now consider things fairer. 

🗞️ Inflation rate for restaurants and cafés eased to 10.4% in March 2023

According to the ONS, the prices of food and non-alcoholic drinks rose at the fastest rate in more than 45 years in the 12 months to March 2023. Cucumbers (up 52%), olive oil (49%) and hard cheese (44%) saw the largest increases. Still, this was a decrease in inflation from the highs of February, which reached 11.4%.

The main consideration for small businesses:

Small businesses may need to consider various strategies to manage these cost increases, such as renegotiating contracts with suppliers, seeking out alternative sources of ingredients, or adjusting menu offerings to reflect changing prices. Food prices will need to be carefully monitored, and strategies will need to be adjusted accordingly to navigate this challenging environment.

🗞️ Around 1 in 4 adults are borrowing more money or using more credit

Nearly a quarter (23%) of adults in Great Britain reported borrowing more money or using more credit in the last month compared with a year ago, according to ONS.

The main consideration for small businesses:

Small business owners should consider offering discounts or incentives to encourage full and timely payments from customers to improve their cash flow forecasts at this time.

You could also use credit methods as a primary strategy to secure deals with wholesalers and manufacturers, to boost inventory rather than using it on random one-off sunk costs and liabilities. If you must borrow money, it’s better to spend it on an asset that provides ROI.

📉 Only £2.9bn has been invested into UK firms this year so far by venture capitalists

A total of £2.9bn was invested into UK firms in the first quarter of this year, marking a sharp fall from the £12.3bn raised last year when low-interest rates were still fuelling a deal boom, according to data from big four firm KPMG. This marks a shocking 123% decrease in venture capital investments.

The main consideration for small businesses:

Despite the general dip in venture capital, there will always be opportunities for innovative businesses to find ways to stand out from the crowd. Our article on Venture Capital: how it works and how to attract it has all the guidance you need to get started.

🗞️ 16% of the workplace are suffering from mental health, costing £14bn

The sluggish British economy loses £43bn a year from the growing “disease burden”, new research from The Telegraph shows, reflecting how overall health across the population is deteriorating. Mental health accounts for around a third of this cost at £14bn. 

Depression rates are in third place, and rising at the fastest pace behind cancer and diabetes.

The main consideration for small businesses:

Now it is more important than ever to try and stay on top of mental health. You should aim to support your team to reduce sick days and maintain morale and good teamwork. If your budget allows, invest in employee benefits that can help ease the burden on stressed staff members, or that offer them support for their physical and mental health.

🗞️ 1 in 5 say they are squirrelling away less than £50 a month

According to a survey by YouGov, one in four people aged 25 to 49 are saving nothing at all and have no nest egg in case of an emergency. Of those who are saving, one in five are saving less than £50 a month.

The main consideration for small businesses:

UK small business owners in the arts or entertainment industries should be conscious of the limited savings and budgets of potential customers at this time. It may be beneficial to focus on providing low-cost or no-cost events to promote your brand and attract customers for the long term. This could include hosting free concerts or events in public spaces or offering discounted tickets for events during off-peak times. By being creative and finding ways to offer value to customers without breaking the bank, you may still be able to increase your customer base and grow your business.

Conclusion: What can small businesses do to survive the cost of living crisis?

During these challenging and trying times, small business owners should prioritise their financial management. 

This might include keeping a tighter track of your expenses, creating a budget, and seeking professional financial advice and services when necessary. That way you can better understand your financial situation and the different options you have available to you – and so that you will be able to make more informed decisions to help your business survive and thrive.

It’s important not to panic and make rash decisions, such as cutting corners on quality or reducing any trust in your workforce. Such moves can have long-term negative consequences. Instead, you should remain calm, focus on your strengths, and seek help and support when needed. 

It would be much more advisable to simply ensure that you’re doing all of the smaller things that will help your business, such as reducing overhead costs, before doing anything drastic. 

For example, be sure that you’ve switched to energy-efficient lighting and equipment; negotiate better deals with suppliers when you can, and try to streamline your processes to reduce waste and improve efficiency.

In conclusion, small businesses can survive the cost of living crisis by managing their finances, cutting overhead costs and keeping a clear head. 

While these measures may require some effort, they will help most small businesses weather the storm and emerge stronger in the long run.