One third of UK small businesses to cut their staff, a study reveals

Small businesses in the UK have been struggling financially in the past months and the new year seems to pose the same difficulties. With the pandemic going strong and a new wave of cases, record inflation, supply chain delays and energy market crisis, the UK is undergoing a huge instability. The worst affected have been the smaller businesses and they have been forced to take urgent measures to dismiss many of their employees. 

Why are businesses forced to cut their staff?

A study with 442 businesses participating found that a third of small businesses in the UK are planning to reduce their staff over the next few months, rising to more than four in ten in London. The main reasons are the supply chain problems and the inflation, which have forced the businesses to raise their prices. Many have been struggling to pay back debts during the pandemic, while others had to face shortages in special staff such as chefs and drivers. Furthermore, businesses have to cope with the record high energy prices and the ongoing energy market crisis during which many energy suppliers went bust and others increased their tariffs.  

45% of London small businesses to reduce their employees

The accountancy firm Moore UK conducted a survey with owner-managed businesses and found out that 33% of them are planning to cut their staff in the next six months. This figure grows in London, where 45% said that they are considering reducing their teams. This is likely to reflect the effects of the pandemic on the finances of the hospitality sector, including restaurants and hotels,  which makes up a significant part of the capital’s economy.

The chairman of Moore UK said: “It’s surprising to see so many businesses are considering reducing staffing numbers so substantially. Policymakers should be careful not to assume that the economy is back in rude health – especially taking into account how the new restrictions just implemented may further impact businesses.”

The study also shows that 49% expect to increase their product and service prices in the next six months, mainly due to  supply chain issues.

Furthermore, around 38% of businesses responded that the increasing employee cots are the main factor to increase prices. Many businesses in the hospitality industry have been forced to offer bonuses upon signing new contracts to attract key employees amid shortages. 

Omicron to affect businesses even more

The newest variant of COVID-19 has put many businesses in danger again. With the extremely fast rate of spreading, Omicron may lead to new restrictions that will further affect the already struggling to survive businesses. This could further force businesses to take the urgent measures of cutting employees and increasing prices in a shorter and expected period of time.

UK businesses to repay £1.6bn 

A separate study performed by EY, has shown that big corporations have paid down existing debt way faster than expected in 2021. These results demonstrate the difference between the “winners” and the “losers” of the pandemic. The study also found that  UK businesses would pay back £1.6bn during 2021 after borrowing £35bn in 2020, an amount driven by firms that have fared well over the past 20 months.