Salary freezes and restructures rife amongst South East mid-market as high rates bite

New research from Grant Thornton UK LLP’s Business Outlook Tracker finds that rising interest rates and high costs have pushed many South East businesses to review their spending, freeze pay increases and restructure their operations in a bid to manage their finances.

The survey of 54 South East mid-sized businesses finds that 56% have already frozen salary increases, with a further 31% planning to do so. Over a third (39%) have also frozen workforce bonuses.

It also finds that spending on people costs has been reined in across most areas, with 48% also having reduced their headcount and many businesses freezing recruitment (46%).

As well as tightening costs for people, many businesses in the South East have had to make changes to their operations in a bid to manage costs. Almost all (91%) have either already restructured their operations or have plans to do so.

The research shows that spending is being closely monitored within the market, with over a third (39%) having reviewed their non-essential spending and a further 52% planning to do so.

South East businesses are looking for solutions in a bid to improve performance amid a tightening of spending. Almost half (46%) have invested in productivity, efficiency and automation and a further 48% have plans to explore options in this area.

Alistair Wardell, partner at Grant Thornton UK LLP and head of its restructuring team in the South of England and Wales, said: “While inflation is, slowly, starting to fall, it’s clear that firms are remaining prudent and closely monitoring their spend across all areas from wages to recruitment and operations.

“Ensuring they keep a close eye on their financing position and rein in unnecessary spending where possible will help many to remain in a robust position despite the cost pressures they may be facing.

“We have also seen an increase in optimism about business’ future revenue growth expectations, which suggests that many are confident that the actions they’re taking now, or have planned, are sufficient to work through this period.

“Particularly as we have seen slight real wage growth for the first time in over a year which, when combined with the fall in energy costs and usage over the summer, means that consumers will have more disposable income to spend.”

Almost three quarters (72%) of the South East businesses surveyed anticipate that they will need to raise additional funds over the next year. Of these, 79% say that the current terms agreed with their lender are under pressure, whilst a quarter of all respondents said that accessing finance has become more challenging over the last 12 months.

Consequently, an increasing number of mid-market borrowers find themselves in need of further capital but unable to achieve the necessary funding or terms with their existing bank lenders.

Instruments such as Sustainability Linked Loans (SLL), which offer more favourable terms tied to performance against agreed ESG goals, are increasingly popular with the South East mid-market. 70% of respondents already have an SLL in place, and 65% said they will consider one at their next debt raise or refinance.

John O’Mahony, Gatwick practice leader at Grant Thornton UK LLP, said: “Right now, high street banks are finding it difficult to lend to mid-sized businesses thanks to a combination of economic pressures including increased borrowing costs, high interest rates, wage inflation and more.

“This is particularly true for companies in sectors that are more challenged, such as manufacturing, hospitality, retail, construction and real estate.

“This poses a problem for businesses that need to extend their existing borrowing arrangements or raise new capital when they no longer fit what their traditional lenders are looking for.

“However, the business finance market is undergoing constant evolution with a wide range of lenders, including challenger banks, asset-based lenders and private lenders, now actively looking to help businesses that the high street banks no longer feel able to support.

“This creates all important options to access capital for mid-sized organisations in the South East and much-needed flexibility when it is most needed.”

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