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Businesses brace for profit squeeze in 2011

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6th Sep 2010
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Businesses are cautious about their profit outlook for the next 12 months, with the majority expecting an increase in costs but very few expecting to recoup these through higher prices.

The squeeze on UK firms is expected to be markedly worse than elsewhere, according to KPMG’s new Global Business Outlook study.

The study found that 88% of service firms around the world expect input costs to increase, or at best remain static, over the coming year. In contrast, just one fifth (20%) of services firms and less than a third of manufacturers (32%) expect to be able to command higher prices for goods and services this time next year.

Increases in raw materials prices, competitive pressures, mounting energy costs and rising inflation were all cited in the study as contributing factors to the rising cost base.

“Without the ability to pass escalating costs on to customers, firms will struggle to grow profits over the coming year, raising serious doubts over sustained economic recovery,” warned Martin Scott, a partner at KMPG Performance and Technology.

In the UK, almost half (46%) of services firms anticipate a rise in input costs over the next year. Among UK manufacturers, nearly two thirds (63%) said they were expecting input costs to increase.

“As public spending cuts hit home and the prospect of a double dip recession looms, UK businesses are markedly more downbeat on the prospects for profit margins for the next 12 months than the rest of the world,” said Scott.

“Facing pressure on margins, firms in the UK and globally must continue to manage costs tightly, while identifying fundamental changes to their operating models to drive further efficiencies. They will also need to explore innovative pricing and bundling strategies to increase share of wallet, and we expect to see multi-nationals accelerating their push into emerging markets.”
 

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