Businesses demand action on UK inflation

Business chiefs called on the government to take immediate steps to boost investment in the economy after official figures showed the UK inflation rate had reached a 40-year high of 9.1%.

cost of living two
Although the figure for last month was only 0.1% higher than in April - and slightly lower than most economists had forecast - the rate is still expected to reach about 10.5% later in the year.

The main reasons for the surge in prices, which is being felt in virtually all nations across the globe, has been mainly attributed to rising food, energy and fuel costs, exacerbated by the war in Ukraine.

Chancellor of the Exchequer Rishi Sunak said the government was "using all the tools at our disposal to bring inflation down and combat rising prices".

Will we see an end to the inflation rise?

He added: "I know that people are worried about the rising cost of living, which is why we have taken targeted action to help families, getting £1,200 to the eight million most vulnerable households."

However, business leaders said much more, long-term assistance was needed to boost the economy, in addition to measures to provide short-term relief for householders.

Anna Leach, deputy chief economist at the Confederation of British Industry (CBI), said: “Inflation has picked up again, and we expect it to stay elevated over the year ahead, particularly as global price pressures remain strong. The result will be much pain for those businesses most exposed to higher costs, and a historic squeeze on households’ incomes.

“The void left by falling household spending must be filled by government action to shore up both near and long-term economic growth. Committing to a permanent successor to the super-deduction (tax break on business investments), as well as supporting green infrastructure and technologies that help cut energy bills in homes and businesses, will both boost economic confidence and reduce exposure to volatile global energy prices.”

David Bharier, head of research at the British Chambers of Commerce, said the rise in the Consumer Prices Index "underscores the severe pressure" that both businesses and households are under.

Businesses and households are under pressure as cost of living continues to rise

“In early 2021, firms were already flagging huge spikes in raw material and shipping container costs as the world economy began re-opening," he said. "Since then, global factors have continued to drive up commodity costs, and more and more sectors have been impacted.

“Inflation is set to continue upwards, with a further rise in the energy price cap yet to come, leaving businesses with mounting economic uncertainty, alongside labour shortages. One immediate measure to reduce the pressure on firms would be to cut VAT on business energy bills to five per cent.

“This inflationary surge sits alongside a poor economic outlook and unless the government acts with urgency to encourage businesses to invest, the chances of a recession will only increase.”

Martin McTague, national chair of the Federation of Small Businesses (FSB), also called for government action now, because "the cost of living crisis starts with a cost of doing business crisis".

He said ministers must tackle inflation at its roots by taking pressure off the small firms that are doing all they can to absorb higher input, labour and energy costs.   

“As margins are eroded, leaving less and less for firms to invest in upskilling and innovation amid labour shortages and net zero targets, the government must use the tools at its disposal to help stem the tide," he said. 

“That means looking at reversing hikes to national insurance contributions, reductions in business rates for small firms, cuts to VAT, especially on energy, and targeted reductions in fuel duty – many businesses, especially in rural areas, have no choice but to use the roads. 

“Unless action is taken now, surging costs will continue to be reflected in anaemic growth, productivity and investment figures."

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

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