New figures from the Office for National Statistics suggest that many UK businesses are facing renewed pressure on their operating costs, even where they have not been able to increase the prices charged to customers.
In its Business Insights and Conditions Survey published on 22 October 2026, the ONS reported that 33% of trading businesses experienced an increase in the prices of goods and services purchased during September. By comparison, only 12% reported an increase in the prices of the goods and services they sold.
Although the two figures do not necessarily relate to the same businesses, they illustrate a familiar problem. When purchasing costs increase faster than selling prices, profit margins can come under considerable pressure.
Why small increases matter
Consider a business selling a product for £100, with direct costs of £60. The business earns a gross profit of £40 before meeting its overheads.
If the direct cost increases by 10%, rising to £66, but the selling price remains unchanged, gross profit falls to £34. Although the increase in costs may appear relatively modest, the gross profit earned on each sale has fallen by 15%.
For businesses operating on narrow margins, this type of change can have a significant effect on profitability, particularly where several suppliers introduce price increases over a relatively short period.
The challenge is not necessarily to pass every cost increase directly to customers. Businesses must also consider whether existing prices remain competitive and whether customers are likely to accept changes.
Review costs before changing prices
A useful starting point is to compare the gross profit margins achieved over recent months, identifying products, services or customers where profitability has deteriorated.
This review may reveal opportunities to renegotiate purchasing arrangements, reduce waste, improve productivity or concentrate sales activity on more profitable work.
Businesses should also consider whether their existing quotations and contracts allow sufficient protection against increases in material, labour or distribution costs. Long-term agreements can become particularly problematic where selling prices remain fixed but operating costs continue to rise.
Consider the cash-flow effect
Reduced margins affect more than the profit and loss account. If a business needs to pay suppliers more quickly than it receives payment from customers, higher purchasing costs can increase the amount of working capital required.
Regular management accounts and cash-flow forecasts can help identify these pressures before they become serious.
The latest ONS figures provide a useful reminder that turnover growth does not necessarily translate into improved profitability. Business owners should therefore review their gross margins, purchasing arrangements and pricing decisions together, rather than concentrating exclusively on increasing sales.