‘Economic Stimulus Needed’ amid inflation rise

The UK government faced calls on Wednesday for measures to stimulate business investment after official figures revealed that the nation's inflation rate had increased to a 40-year high of nine per cent in April.

cost of living photo
As with most other economies around the world, the latest surge was largely due to record energy prices and the knock-on effects of the war in Ukraine. And the UK has not been helped by the recent fall in value of sterling against the dollar, pushing up the price of imports.

Chancellor of the Exchequer Rishi Sunak said: “We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.”

The Consumer Price Index in the UK is expected to reach double figures in the coming months. Further rises are also expected in the likes of the US, which recorded an 8.3% rate last month, and Germany (7.4% in April). The highest annual rates in the EU have been recorded in Estonia (19.1% and Lithuania (16.6 %)

Cost in living continues to grow

Aside from the cost-of-living rises for families, UK business groups said all sectors of the economy were suffering from unprecedented rises in energy and fuel costs. Many firms reported they are currently confronting similar financial problems caused by the pandemic, but were now without the same level of government support introduced to counter the effects of Covid-19.

Rain Newton-Smith, chief economist at the Confederation of British Industry (CBI), said it was no surprise inflation soared in April given the rise in energy prices, and felt the rate was likely to stay high in the immediate future, resulting in an "historic squeeze in households’ incomes and a tough trading environment for businesses".

She added: “It is critical the government explores options to help people facing real hardship now, and support cashflow for vulnerable firms. Stimulating business investment is also crucial, to both plug the near-term gap in growth and to shore up the economy’s potential to withstand future shocks.

"Turning good intentions on a permanent investment deduction into a firm commitment, setting out an infrastructure roadmap and publishing a digital strategy are steps which can be taken without delay.”

Kitty Ussher, chief economist at the Institute of Directors, agreed that increase in the rate for March's seven per cent had been expected but said the rate was, nevertheless, "shockingly high".

“Business leaders tell us that the UK macro-economy is now their number one negative issue, driven by worries over inflation. As a result, firms are becoming more reluctant to invest, storing up problems for the economy in future," she said.

“If the Chancellor intends to intervene in advance of the further (energy) price cap rise in the autumn, he should make that clear, to start bringing expectations of future inflation back down.”
Related articles:

Suren Thiru, head of economics at the British Chambers of Commerce, described inflation last month as "eye-watering" and underscored the growing cost-of-living crisis facing households and the damaging squeeze on firms' ability to invest and operate at full capacity.

“The marked acceleration in the headline rate in April reflected the continued upward pressure on prices from surging energy and commodity costs as well as the energy price cap rise and the reversal of the VAT reduction for hospitality in the month," he said.

“The scale at which inflation is damaging key drivers of UK output, including consumer spending and business investment, is unprecedented and means there is a real chance the UK will be in recession by the third quarter of the year.

“Soaring inflation means that a June interest rate rise is inevitable. However, higher interest rates will do little to address the global factors driving this inflationary surge and risks undermining confidence and aggravating the financial squeeze on consumers and businesses.

“Although surging global energy and commodity prices aren’t typically something in the UK government’s direct control, more needs to be done to help consumers and businesses through this difficult period. This should include reversing the rise in National Insurance Contributions and cutting VAT on business energy bills to 5%.”

Data from Office for National Statistics (ONS) showed a wide divergence in the inflation rates of different sectors of the economy. The increase in the price of goods stood at 12.4%, but only 4.7% in services. Petrol was up 28.9% over the year and electricity up 53.5%, while gas soared by 95.5% and home heating oil by 113.9%.

Inflation rates grow in different sectors but housing market slows down

Meanwhile, in a separate report on Wednesday, the ONS found that UK house price growth slowed in March, although the price of the average property still hit a fresh record.

Average house prices increased by 9.8% over the year to March, down from 11.3% in the 12 months to February. The average UK home price stood at £278,000 in March - £24,000 higher than a year earlier.

Jonathan Hopper, CEO of Garrington Property Finders, said that the figures showed that "economic gravity" is finally catching up with the property market.

“For the UK as a whole, the slowdown is still slight. But the annual pace of price growth has fallen below the symbolic double-digit threshold and is all but certain to stay there," he said.

“The slowdown has been sharpest in the nations that had previously seen prices rising fastest. The value of an average home in Scotland rose by a modest 8% in the year to the end of March. Just a month earlier, annual price rises north of the border were running at over 12%.

“Meanwhile, London’s brief spurt of strong price growth is subsiding. Average prices in the capital are now rising by just 4.8% a year, less than half the national average."

Read more news and views from David Sapsted in the Spring 2022 issue of Think Global People.

Download the Summer 2022 Edition

Join us at the Future of Work Festival on 9 June to explore these topics further and be part of a unique experience driving innovation and collaboration for growth. Book tickets here.

Subscribe to Relocate Extra, our monthly newsletter, to get all the latest international assignments and global mobility news.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Global Mobility Toolkit download factsheets resource centreAccess hundreds of global services and suppliers in our Online Directory 

Related Articles