Home Insights & Advice The Impact of rising energy prices on companies in the UK

The Impact of rising energy prices on companies in the UK

by John Saunders
19th Jan 22 3:57 pm

Energy prices have been hitting headlines recently. Currently skyrocketing, while energy price rises can have a significant effect on domestic users, they can also have significant negative consequences for businesses, regardless of where they reside. Whether it’s affecting your bitcoin profit (from mining), hammering your supply chain or forcing you to change the way you do business altogether, energy price rises bode bad news for many organisations.

If you’re interested in finding out the impact of rising energy prices on companies in the UK, read below.

Why are energy prices rising?

International factors

 It is a combination of factors intertwining to create a perfect storm, and it is an international issue, not just affecting the UK. Supply and demand are affecting everything. Gas prices have been driven up by a particularly cold winter in 2020-21, while demand has boomed in Asia (especially China). Europe and Asia is very dependent on Russian gas, and they’ve cut supply to Europe in recent months (for political reasons it is believed). This has hammered wholesale prices.

Electric prices have been hit by a long period of relatively calm weather, which has hit wind-generated power. The UK also generates around 35-50% of its electricity by burning gas, so any changes in the gas price also hits electricity.

 Meanwhile, oil prices have also increased as demand grows as we emerge into the post-Covid world. Supply restrictions are also being maintained by OPEC.

Local factors

 Distribution of petrol has also been an issue in the UK, where due to COVID and Brexit, a shortage of HGV drivers is being experienced. This ongoing problem has caused extreme problems in getting fuel into petrol stations in time. Because of this, the fuel prices are increasing to meet the high demand.

Too dependent on fuel

Businesses in the UK are extremely dependent on fuel. Because of this, when fuel prices increase, it drastically affects UK companies. Depending on the industry, some businesses can be more affected than others. Large-scale, energy-intensive industries are being hit hard as you can imagine, but even the smallest of businesses are being hurt. Even heating a small office or shop can become very expensive.

For businesses reliant on transportation and distribution, the energy price increases lead to many product-based companies and transport companies struggling due to the fuel prices eating up into their profits.

Think about it, if you have suppliers that need to deliver your goods from one location to the next, the extra costs that will be incurred are going to be passed up the chain and onto businesses.

Pricing issues down the line

With more and more suppliers passing costs on to businesses, they will then, in turn, have to pass on these costs to their customers, increasing the prices of their products. This may be a big issue for some industries, especially those that operate in an extremely competitive market. Profit margins, already thin in some business models, are being squeezed drastically.

Possible employee issues

Another potential impact that rising fuel prices can cause is with regard to employees. If fuel prices cause overheads to massively increase, it could become too expensive to have so many employees, resulting in cutting working hours or needing to make redundancies in more severe cases.

What this means for the future

Although this is a big problem at the current time, this doesn’t mean that it will last forever. Many predict that the price will eventually drop again, leading to the fuel prices being less of a pressing issue for businesses as things go back to “normal” once more.

However, we would seem to be entering a period of heavily fluctuating energy prices. It is in the interest of every business to mitigate these peaks and troughs. For your business, consider changing a few things to your processes to reduce the impact that rising fuel costs can have in the meantime.

Consider outsourcing – look to use another business that has the resources that your company may be lacking to reduce these problems.

Also, if your business does a lot of travelling, you can claim a tax deduction on all work-related travel to reduce the cost of fuel for your business as much as possible.

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