Hospitality firms suffered disproportionately in the first quarter of this year as businesses across all sectors continued to tread water in terms of investment, sales and cashflow.

Although inflation has slowed significantly in recent months, almost half of those questioned in the quarterly economic survey from the British Chambers of Commerce (BCC) expect the price of their goods and services to rise further. This brings a halt to the downward trend that started in the second quarter of 2022, with labour costs cited as the main source of pressure.

BCC head of research David Bharier said the results are further evidence of a UK economy "trapped in a low-to-no growth state".

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“The lack of investment among most SMEs is a real concern," he said, noting that 92% of the firms questioned had less than 250 employees.

"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 survey of more than 4,800 firms from throughout the UK found no improvement in overall business conditions with 36% reporting an increase in domestic sales, the same as in the fourth quarter of last year. Likewise, for the second quarter in a row 22% reported a decrease and 42% said sales remained constant. 

Looking at the 12 months ahead, 56% firms expect to see their turnover increase, the same as in the previous quarter. Only 14% of respondents are expecting their financial situation worsen, and 29% expect things to remain the same.

Confidence in profitability remained static with 48% saying they expect an increase in the coming year, compared to 47% previously, while 21% believe their profits will fall. 

Although headline inflation has eased considerably, 46% of respondents predicted an increase in what they charge for their goods and services, compared to 47% in the previous quarter. A little over half - 51% - think prices will stay the same and just 3% are anticipating a decrease.

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Some sectors are feeling the pressure of labour costs more than others, with 77% of hospitality firms and 76% of manufacturers citing it as a key driver. Cashflow in the hospitality sector was also poorer than average, with 39% of these firms reporting a decrease compared with 28% of respondents overall.

BCC director general Shevaun Haviland said the recent increase in the national living wage is good news for millions of employees, but comes at a time when labour cost pressures for many businesses are already very high.

"Firms need room to breathe as they strive to pay staff fairly," she said.   

“In this election year it’s vital that politicians remain laser focused on helping businesses invest, develop and grow. We encourage all parties to study our findings and understand the reality for SMEs in communities up and down the country.”