Fewer firms plan to raise their prices, but wages are now the biggest cost pressure for businesses, the latest Quarterly Economic Survey from the British Chambers of Commerce finds.

Less than half of UK firms – 45% – expect their prices to increase in the next three months as inflationary pressures in the economy ease, the survey shows. This statistic is down from 55% in the first three months of this year and 60% at the end of 2022.

But the main factor for increasing costs is now coming from wages rather than utility bills or raw materials, 68% of businesses reported.

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Shevaun Haviland, director general of the British Chambers of Commerce, said: “With inflationary pressures weakening, but wage cost concerns remaining high, our research should give the government and Bank of England pause for thought on their next steps. 

“There is a fine balancing act to be struck here. Push too hard on interest rates and there is a real danger that the long-term outlook for economic growth and prosperity will be dented.”

Ms Haviland said the Bank of England had itself identified the tight labour market as a key factor in the UK’s stubbornly high inflation. 

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She added: “The government must redouble its efforts to get people back into work and create the right conditions for employers to invest in staff training and development.  Where firms cannot recruit and train from their local or national labour market, a flexible, efficient and affordable immigration system is crucial.” 

BCC’s report, which surveyed 5,000 firms in May and June – 92% of them small and medium-sized enterprises – also found that retail and hospitality sectors were under most cash flow pressure. In these sectors, 38% and 37% of firms respectively reported reduced cashflow.

PR and marketing, on the other hand, was the most positive sector, with 33% of businesses reporting growth. Business confidence remains generally buoyant, the BCC said, though rising interest rates are a growing concern. The survey found 41% of businesses in the second quarter of the year reported being worried about interest rates, up from 36% in the first quarter of the year.