Consistent inflation rate of 3.1% encountered, preceding anticipated increase in everyday expenses costs
In the heart of the UK's economic recovery, small businesses are grappling with the rising tide of inflation, a challenge that threatens to disrupt the fragile growth.
Jez Lamb, founder of Beers @ No.42, voices concerns about the difficulty of raising prices to combat inflation without losing customers. His sentiments are echoed by Debbie Porter, Managing Director of Destination Digital Marketing, who notes that small businesses face a difficult decision when it comes to increasing prices during inflationary times, as retaining customers is crucial.
The cost of living rose by 0.3% in September, with fuel prices increasing and prices at the pump reaching an 8-year high. This escalation was attributed to a 12% leap in the energy price cap, VAT reductions for hospitality & tourism reversals, and persistent supply chain disruptions and worker shortages. As a result, the Consumer Prices Index (CPI) measure of inflation decreased slightly to 3.1% in September, but economists predict that October's inflation rate will increase, potentially surging above 4% by the end of 2021.
Suren Thiru, Head of Economics at the British Chambers of Commerce, advises the Bank of England not to raise interest rates at a time of escalating cost pressures and looming tax rises. Robert Walton, Managing Director of The Lindhurst Group, shares this sentiment, suggesting that the economic recovery is too fragile to tolerate increased interest rates at this stage. Institutional confidence is needed to drive underlying growth, he adds.
In an effort to keep costs down and stay competitive, Thiru suggests a moratorium on all policy measures that increase upfront business costs for the remainder of this parliament. The chancellor should consider abandoning the up-rating of business rates for at least the next financial year to avoid severely aggravating already diminished business cashflow and further damaging high streets and town centres.
However, not all businesses are choosing to pass on the cost to their customers. Scott Gallacher, a Chartered Financial Planner at Rowley Turton, mentions that his company brought forward their annual wage rise due to concerns about high inflation and potential labor shortages, choosing to absorb the cost rather than increase fees.
On a positive note, Jamie Rackham, founder of NOT ON AMAZON, states that the community of indie makers on the platform has grown faster than ever due to members being able to promote their businesses without incurring additional costs during inflationary times. Gillian Ferguson, owner of Twisted Empire Bakes, expresses concern about the energy crisis and high cost of living putting pressure on small businesses, particularly those supplying the hospitality sector.
Amidst these challenges, businesses like Beers @ No.42 and The Lindhurst Group are preparing to increase prices for the first time in three years due to the erosion of margins. The future remains uncertain, but one thing is clear: small businesses will continue to play a vital role in the UK's economic recovery, and their resilience will be tested in the months ahead.
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