Eight-in-ten UK executives plan price hikes before 2026

04 April 2024 Consultancy.uk 4 min. read
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The number of firms expecting to drive up their pricing is expected to rise, in response to volatile energy prices. While UK economists have been extolling the virtues of slowing inflation in recent months, a new study from PwC shows 4% more businesses are plotting price hikes than during the last two years.

The start of the year has promised UK households some relief from the cost-of-living crisis that has now dragged on for two years. Amid record rates of inflation and stagnant wage-growth, the cost of the weekly shop did plenty to diminish the spending power of consumers, but on top of that, they had to contend with unprecedented hikes in energy bills. Now, the country’s energy price cap is set to fall by 12.3% as it enters the second quarter of 2024 – and it could fall further later in the year.

At the same time, the annual rate of inflation continued to slow. In January it was recorded as 4%, and in February this was 3.4%, suggesting that at least prices would stop increasing at the alarming rates they had spiralled through 2022 and most of 2023. But just as households might feel something resembling hope that they might recoup a portion of the £2,300 that they have lost on average, a new report suggests that worse may still be to come.

Eight-in-ten UK executives plan price hikes before 2026

At the turn of the year, PwC polled 750 senior executives in the UK, whose roles see them make strategic decisions in relation to energy. Citing rising energy costs in the last two years as the cause, 77% of those respondents said they had cranked up the prices of their products and services in turn – at least moderately. But even as energy prices look to fall, ‘uncertainty’ in the sector means that even more executives plan to raise prices again in the next two years.

By 2026, 81% of respondents said they will raise prices moderately or significantly. A 72% portion of respondents say this is because high energy costs will otherwise reduce their profits – and their ability to compete in the UK. A similar number were also concerned they would be unable to compete internationally.

However, recent studies have also suggested that firms are too reliant on short-term price hikes to shore up their operations – and that in the long-run, that may be costing them the ability to sustainably maintain their brands. Indeed, having pushed consumers as far as they can, many firms are now concerned that income may begin to fall in the coming months, leaving other cost increases to bite hard.

Eight-in-ten UK executives plan price hikes before 2026

When it comes to how companies can best ween themselves off the simple solutions and to build for greater resilience, though, respondents remain divided. While 27% said they would prioritise reducing energy consumption and 26% said they would aim to reduce carbon emissions and energy costs, few could agree how they would do this. For example, only 37% of respondents had fully adopted energy procurement strategies, wile just 31% had fully adopted means to improve energy efficiency.

When asked what was holding back these efforts, executives reeled off the same old list of excuses. Even with 24 months of hindsight on their side – 48 if the disruption of the pandemic era is also included – 63% of executives perceive a “lack of solutions with immediate impact” at their disposal; 63% believe environmental commitments are limiting their options; and 61% cite the high capital cost of solutions as holding them back. But having been aware of these issues for so long, and still seeming to be no further along, how seriously are these executives actually taking the need to move away from reflexive price changes to preserve their profit margins? Perhaps not enough to take advantage of future opportunities, according to PwC.

Vicky Parker, the sector leader for power and utilities at PwC UK, said, “Achieving predictable and controlled energy costs while eliminating carbon emissions is a multi-year transformation, and will require long-term vision and leadership. But until more UK organisations think this way, they will continue to suffer the effects of volatile prices, and remain at the mercy of the geopolitical forces that have rocked energy markets for the past two years – and undoubtedly will again in future. The extent to which organisations can manage their operations to try to control volatile energy costs and carbon depends on their organisational sophistication, the availability of financing and their expected returns on investment.”