More than half of firms in the UK (56%) expect to see their turnover increase over the next 12 months, the same as Q4 2023, according to the latest economic survey by the British Chamber of Commerce.

The survey, conducted between 12 February and 12 March, of over 4,800 firm across the UK – 92% of whom are SMEs (fewer than 250 employees) – also showed 14% of respondents are expecting to see their financial situation worsen in the year ahead, while 29% expect things to remain the same.  

Profitability confidence has remained static, with 48% of companies saying they expect profits to increase in the next year. That compares to 47% in Q4. Meanwhile, 21% of respondents believe their profits will fall.  

With inflation likely to remain volatile over the coming months, the data also found that more firms expect hikes in their own prices, with staffing costs being the main pressure.

Nearly half of firms are expecting the price of their goods or services to rise with 46% of respondents are predicting an increase (compared with 47% in Q4), 51% think prices will stay the same, and just 3% are anticipating a decrease. 

For the second quarter running, 68% of responding firms say they are under pressure to raise prices because of staffing costs. Some sectors are feeling this pressure more than others, with 77% of hospitality firms and 76% of manufacturers citing it as a key driver. 

While inflation remains firms’ biggest concern, business worries about interest rates continue to gradually fall. More than a third of businesses (35%) say they are concerned about the cost of borrowing, compared with 39% in Q4. These figures remain high compared with the pre-Covid trend.

Economic headwinds continue to impact heavily on business investment. The majority of firms say they haven’t increased the amount of new plant, machinery and equipment they’ve bought or rented. Only 24% reported an increase in investment (the same as Q4), while 60% said levels had remained the same, 16% reported a decrease.   

There are large sectoral disparities in investment levels. 28% of hospitality sector firms say they have decreased investment, while 30% of manufacturing businesses have increased investment. 

David Bharier, head of research at the British Chambers of Commerce said, “Although business confidence remains buoyant at the start of the year, most SMEs are still not reporting any tangible improvement to business conditions.”

“The lack of investment among most SMEs is a real concern,” Bharier said. “Inflation, skills shortages, and an almost endless list of new trade barriers with the EU, coupled with a lack of clear direction on infrastructure and technology investment at the government level, have led to paralysis for many businesses.”

“The increased percentage of firms expecting price rises is also a reflection of global conflicts and the introduction of further import costs,” Bharier said. “As we head towards an election, businesses will need to see a clear long-term plan for investment and innovation from politicians.” 

Shevaun Haviland, director general of the British Chambers of Commerce said, “Our results are a timely reminder of the challenges businesses are facing across the UK. We desperately need to see SMEs investing again. Government moves on rate relief, planning reform and full expensing are welcome – but they haven’t yet shifted the dial.”