More than 10% of mid-sized Liverpool businesses may not have enough working capital to survive if inflation pushes past 11%, a new study warns. Tony McDonough reports

Firms across Liverpool face a threat to their survival if inflation rises above 11%, a new study claims.

Accountancy firm Grant Thornton says more than 10% of mid-sized businesses in Liverpool may not have enough working capital in such a scenario. Inflation hit 10.1% in July but is expected to rise further in the coming months. One estimate says it could hit 18%.

Surging energy prices are largely to blame for the inflation rise. Many businesses are already reporting soaring bills from the energy suppliers.

Grant Thornton’s August Business Outlook Tracker polled 53 Liverpool mid-market business leaders in early August. It found that all those surveyed have seen cost increases across the board. The biggest increases were seen in costs for technology, energy, and recruitment.

A number of businesses in the city have already taken remedial action to manage rising costs and defend profit margins. Nearly half have frozen recruitment (45%), passed on price increases to their customers (43%), and deferred investment in R&D (43%).

More than half (58%) of the Liverpool based respondents expect that the UK economy will fall into recession before the end of 2022. 

READ MORE: Almost 9,000 city region firms ‘on the brink’

David Hillan, head of tax at Grant Thornton’s Liverpool office, said: “The pace of change in costs has been extraordinary. It’s hard to believe that inflation has risen from 3% in August last year to over 10% today.

“Before the pandemic, the greatest uncertainty for British business leaders was the fallout from Brexit. Since the first national lockdown, rapid, unpredictable change has become a constant.

“One of the key responses that we’ve seen our clients implement is the frequency with which they review and reassess costs. Annual reviews are no longer sufficient. Businesses are, in many cases, having daily discussions with both suppliers and customers about pricing.

“Set prices are being replaced with cost plus prices, which ensure the customer pays the supplier cost plus an agreed margin.”