Post-pandemic recovery

08th Mar

Everyone from the richest businesses down to the SMEs and workers on minimum wage are feeling the squeeze that is fast hitting our economy. The economy is growing at 7%, the highest since World War II, but is this sustainable when a shortage of raw materials and rising prices is affecting a lot of businesses?

We currently face a very difficult situation, initially with implications from Brexit and labour shortages, but very much so after the Covid pandemic and the debt our country has now accrued. Now the Russian/Ukraine situation could cause even more serious implications if sanctions are imposed, which will only drive-up energy costs here at home.

The UK is continuing to create jobs, but businesses are struggling to recruit, and pay is failing to keep up with inflation. According to the latest Office for National Statistics (ONS) data from October to December 2021, wage growth is struggling to keep up with increasing inflation.

Whilst regular wages, excluding bonuses, increased by 3.6% between October and December 2021, when adjusted for inflation regular pay fell on the year at -0.8%. For December alone it’s even worse, with a monthly decline of -1.2%.

The Bank of England has acted to combat accelerating price growth by raising interest rates to 0.5%, but if, as economists expect, inflation rises above 7% this year, the Bank has warned that the hits to business running costs and workers will likely get worse. What happens next is monopolising attention at the Bank of England and No 11 Downing Street, not to mention employers across the country considering annual pay reviews. Many have not given pay rises for the last couple of years and are now in the position where their workforce needs the increases to offset rising costs of living and household bills – but the cost to wage rises must be passed on to keep making a profit – it’s a spiralling inflationary situation.

We have also yet to assess the effect of the government-guaranteed bank loan schemes during the pandemic and potential business insolvencies and how that will affect the economy.

Money is just not going very far, and the squeeze is being felt by everyone across the board.

The UK alone can do little about soaring gas and oil prices – and business owners and people’s pockets are going to feel this further in the Spring after Ofgem announced an increase in the energy price cap which will add around £700 on average to annual gas and electricity charges for millions of consumers. Add to this the increase in Corporation Tax, the National Insurance tax rise and freezes to income tax thresholds Chancellor Rishi Sunak has ordered from April, the pressure on businesses and on pay packets is only going to increase.

Bold action is needed for growth, with steps to address skills and labour shortages. This is very much a time for businesses and households to look at incomings and outgoings and budget accordingly.

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Dutton Moore, Aldgate House, 1-4 Market Place, Hull, HU1 1RS
01482 326617
www.duttonmoore.co.uk

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