Economic threats your business needs to plan for

The Bank of England is predicting that the UK will dip into recession at some point in 2022, driven by multiple factors that are causing the economy to stall and falter. But what are these key economic threats? And how are they likely to affect your business in the coming months?

The 5 big economic threats for UK businesses

The main economic issues that should be on your radar are external threats that, for the most part, are outside your direct control. But with an improved understanding of the problems, you’re better set to take action and reduce the impact.

Key issues in 2022 include:

• High interest rates – The Bank of England has raised interest rates from 1.25% to 1.75%; the highest rate for 27 years. This increase may be good news for companies with surplus cash in a high-interest savings account. But it’s bad news for any businesses in need of funding. Higher rates make borrowing more difficult and increase the cost of repaying existing loans and finance facilities.
• Rising inflation and high costs – UK inflation is currently at 9.4%, its highest rate for forty years. Rising inflation is bad for business in a number of ways. It pushes up prices for goods and raises your day-to-day overheads, making it harder than ever to make your working capital and cashflow stretch far enough.
• The supply chain crisis – keeping supply chains running has been extremely difficult during the Covid pandemic. When you add in other geo-political problems, like the Ukraine war and the rising problems of climate change, it’s easy to see how significant the global supply chain crisis has become. When supply is scarce, this pushes up demand, raising the price of raw materials and goods and slowing down the supply chain to a point where businesses can't operate effectively.
• Post-Brexit fallout – the outcome of leaving the European Union (EU) has proved to be difficult for many UK businesses. The additional red tape, long wait times for shipping and freight and additional customs & excise costs have made it impossible for some sectors to trade at full capacity.
• UK recession – these external factors are gradually forcing the UK into an economic corner, with the Bank of England predicting that the UK will fall into recession in 2022, leaving businesses with the prospect of a prolonged period of economic instability – probably not what you hoped for when you sat down to write your 2022 business plan!

Getting your business recession-ready

The outlook for 2022 and beyond into 2023 is less than rosy. But there’s also no need to despair. There are challenges ahead, but there are also ways to bolster your finances, plan for different scenarios and get your business ready for the impacts of a UK-wide slowdown.