Referenews

The U.K. is suffering more than other big countries in Europe, economists say. Inflation is running in the double digits, higher than all of its Group of Seven industrialized peers with the exception of Italy; gross domestic product shrank 0.2% in the third quarter year-over-year, setting the U.K. on course for a likely recession. Other big economies like Germany and France are increasingly looking like they may avoid one. The British economy is widely forecast to shrink in 2023, faring worse than every G-20 economy except Russia, the Organization for Economic Cooperation and Development says.

“We’re in incredibly tough times,” said John Kelly, founder of the Kirkstall Brewery in Leeds, where at least one other beer-maker went bust in recent weeks. “Consumer confidence is zero. We face skyrocketing costs, and there’s no way we can pass even 50% of that onto our customers.”

The sense of turmoil has been compounded by a political crisis this Fall, which culminated in a short-lived run on financial markets that brought down the government and sowed lasting worry among international investors. The U.K. has churned through three prime ministers in under two months. More recently, labor unions across industries have initiated strikes this winter that are poised to be the worst in decades. 

Kirkstall Brewery operates in the northern English city of Leeds and is suffering from high energy costs.

Record-high energy bills are eating into disposable incomes. As a result, British consumers are forecast to spend a quarter less on Christmas than they did last year, according to data provider Kantar. That is challenging retailers in their most important trading period.

Some well-known retailers have already shut down over the last two months. Online furniture retailer Made.com collapsed less than a year after it went public with a near-$900 million valuation. That has added to the parade of small U.K. businesses—among them pubs, mom-and-pop stores and fish-and-chip shops—that have folded in record numbers this year.

The northern English cities of Leeds and Bradford, once crucibles of the Industrial Revolution, provide a particularly vivid picture of the country’s economic distress. Many business owners who until recently thought in terms of profit and growth said they were now focused on day-to-day survival.

Retailers in Leeds said Christmas business so far is dire.

Demand for jewelry, traditionally popular in the run-up to Christmas, has largely collapsed, said Charlotte Evans, the fourth-generation owner of Shaw Jewellers. Prices have risen significantly, she said, driven by a doubling in the cost of materials, notably precious metals, in recent months, deterring would-be customers.

“There’s an economic crisis, so people aren’t thinking about buying jewelry,” said Ms. Shaw. Demand is better for her work repairing and remodeling items, she said.

At Bradford carpet maker

Melrose

Interiors, sales have fallen 30% this year, prompting the company to make big changes, said managing director Andy Murphy. Melrose used to supply rugs and mats to British retailers, priced at around £30, the equivalent of $37. Now it has lowered the average price point to nearer £10 by switching to more basic goods, Mr. Murphy said, a reflection of what consumers are currently willing to pay.

“Margins have eroded at an alarming rate; it’s been very painful, but we have to keep positive,” said Mr. Murphy, who employs around 50 people.

Melrose has lately bought fewer machine-made carpets from longstanding suppliers in Belgium, whose costs have ballooned, and has turned instead to low-cost rivals in Turkey. It has also expanded its in-house operation that makes rugs from recycled carpets, Mr. Murphy said.

Mr. Kelly founded his brewery in 2011 in the Kirkstall area of Leeds, where monks were brewing beer at the local abbey almost a millennium ago. Today he employs about 100 people at the brewery and six pubs in and around the city. He hasn’t laid off anyone, but plans for additional pubs and expanded brewery capacity have been abandoned. The company is now in “survival mode,” he said.

Additional red tape imposed on British businesses after the U.K.’s exit from the European Union had already killed Kirkstall’s European export business, Mr. Kelly said. But this year had seemed ripe for domestic expansion, until the British economy—and its politics—went haywire over the course of 2022, he said.

Electricity bills at the brewery, which is housed in a former milk distribution depot, have lately tripled, Mr. Kelly said. “Energy costs are a huge worry for us: we spend a lot of money warming up liquid and then cooling it down again,” he said.

Kirkstall Brewery in Leeds, England, is encountering rising costs that can’t be passed on to customers, says founder John Kelly.

Prices of barley and hops have also increased. Barley leapt 60% overnight at one point this year, and hops, which Kirkstall imports from the U.S., became expensive when the British pound tanked relative to the dollar during the political upheaval of the fall.

Another cost increase has been carbon dioxide, used to flush beer through the brewery’s pipes. The cost of carbon dioxide quadrupled earlier this year, Mr. Kelly said, but has since whipsawed, making it hard to judge whether it would be worthwhile investing in an alternative nitrogen system. “There just isn’t enough certainty to make decisions,” he said.

Kirkstall charges about £5 a pint in its pubs, though it should be charging £6 following this year’s cost increases, Mr. Kelly said. But price increases could alienate the brewery’s regulars. “There’s no easy answer,” he said. “We either lose money on this side or on that side.”

Write to Trefor Moss at Trefor.Moss@wsj.com