With rising raw material costs and continued inflation creep, this year was never going to be easy for UK plc. Recovery is coming slowly, but uncertainty is still nipping at the heels of growth.

For producers and retailers there are two barricades on the road from survival to recovery getting pricing right and controlling costs.

Setting pricing correctly is always a challenge, but never more so than now. A price point must be high enough to sustain investment and profitability, but low enough to avoid damaging already fragile consumer confidence.

But pricing policy must be complemented and determined by a controlled costing strategy. This is vital if profit margins are to remain healthy. Recent research shows UK businesses (including fmcg and retailers) believe 95% of cost reduction completed during the recession could bounce back, and that savings made are not sustainable.

To add insult to injury, there is serious external cost pressure across the supply chain, which cannot simply be allowed to flow through to the consumer in the current climate. Input costs such as fuel have soared, with no signs of abatement.

Denied the luxury of time, producers and retailers underwent radical cost-cutting programmes following the downturn. In a typical fmcg company 60% to 70% of costs sit in the supply. However, the make-up of costs in that 70% is not always fully understood. It is difficult to identify where leaks need plugging.

As a result, more apparent costs tend to be targeted, such as people. Research shows that fmcg companies see salary inflation as an upcoming significant cost, while retailers are concerned about increasing head count over the next few years.

Recession-induced cost-cutting has been dominated by budget squeezing, reducing head count, pay cuts and freezes and the slashing of non-core spending. But none of these crash diets are sustainable. In many cases such savings were not delivered through a change in business culture or operations, but through forced reactivity to the external marketplace.

This approach was not necessarily wrong initially, but as the economy recovers, core behavioural changes need embedding. Now is the time to develop longer-term cost strategies. If not, as growth returns, and head count and investment increase to match demand coupled with rising fuel costs any profit could be eradicated.

Many fmcg businesses invested heavily in systems such as SAP to access quality management information to help them make cuts. However, often there is too much data to sift through to inform correct decisions on cost (and pricing).

A further challenge for producers is to sink cost consciousness into the company culture. Unlike retailers, where frontline staff are incentivised and involved with customers, fmcg production line workers are not usually exposed to the quality of the end product. Employees must embrace a cost-conscious ethos.

UK businesses bought precious time through measures taken in haste during the recession. They must now embed sustainable, lower cost bases that have some flex and ability to cope with rising input costs if nourished growth and healthy margins are to be achieved in the future.

Dr Martin Scott is a partner at KPMG Performance & Technology