Inflation pressures growing on business

07th Jun

As inflation hits a 40-year high of 9%, we talk to Dutton Moore managing partner Tony Bullock about the impact on the economy, the potential for recession and the pressure on the Chancellor to provide further relief to consumers and businesses.

We saw inflation shoot up to 9% in April, the highest level since comparable readings in 1982. Data released by the Office for National Statistics (ONS) showed a broad-based hike in prices for everyday goods and services during April.

The main upward price shifts over the 12 months to April include natural gas – 95.5%. Motor fuels – 31.4%, Electricity – 53.5%, restaurants and hotels, up by 8% and furniture and maintenance up by 10.7%.

The headline consumer prices index (CPI) measure had stood at 7% in March as the immediate effects of Russia’s war in Ukraine filtered through. This was on the back of existing inflation caused by the easing of COVID-19 restrictions that saw demand widely outstripping supply.

It’s clear that what we’re facing now is a very broad-based inflation with higher costs being passed down by all sorts of businesses.

And there’s little sign of this abating: producer price inflation, which measures those costs manufacturers face, rose from an annual rate of 11.9% in March to 14% in April. It’s clear that this period of high prices isn’t coming to an end any time soon.

With gas and electricity costs continuing to be the main worry ahead, there has also been steep annual rises in the cost of metals, chemicals, crude oil, food products, transport and machinery and equipment have also continued,

The Bank of England released updated forecasts earlier in May that inflation will top 10% later this year and it has warned that the strain could result in a recession and surge in unemployment.

I expect the Bank to raise the interest rate to 1.25% in June, this would mark a fifth successive increase to tackle inflation expectations. Inflationary pressures are likely to continue to grow through the year as the effects of higher prices continue to work their way through businesses and into consumers’ pockets.

Whilst Rishi Sunak draws up plans to tackle the crisis, now is the time for businesses to be tightening their belts and look at cost savings and efficiencies. The government are between a rock and a hard place with the international issues that have led to this position. We need general tax cuts across the board to help ease the problem and assist the economy.

For sensible financial advice and to look at finance efficiencies for your business, talk to us today. We are here to provide business advice and financial management as well as general accountancy services.

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01482 326617

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