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Inflation Threatens UK Business Prospects

Inflation Threatens UK Business ProspectsInflation Threatens UK Business Prospects

Rising inflation is becoming an “increasing impediment to the UK’s growth prospects” according to the British Chambers of Commerce.

The latest Inflation Report from the Bank of England forecasts that inflation is likely to rise from its current level of 1% to around 2.75% by 2018, Yahoo reported.

Commenting on the report, Suren Thiru, head of economics at the British Chambers of Commerce, said: “The new forecasts suggest that rising prices are likely to become an increasing impediment to the UK’s growth prospects, as imported inflation erodes consumer spending power and squeezes profit margins.”

He added: “The Bank of England is likely to face a tricky, near-term balancing act between supporting a slowing economy and managing a sustained period of rising inflation.”

Accountancy firm BDO has predicted that consumers face “a difficult 2017 of higher prices and lower wage growth” which will impact negatively on UK businesses. Its latest Business Trends Report says that inflation is now at its highest level for over three years and is set to rise.

Peter Hemington, partner at BDO, said: “Rapidly rising inflation is quickly going to hit the pockets of UK consumers, affect the profit margins of UK businesses and ultimately slow the growth of the UK economy.”

Inflation has been caused by the increasing cost of goods following sterling’s post-EU referendum slump. BDO says increasing inflation is expected to continue in the coming months as the price of goods from overseas markets adjusts to the lower value of sterling. It predicts that the sharp rise in inflation is set to outpace wage growth and will result in consumers having less to spend in the coming year.

Hemington said: “The government needs to inject greater confidence back into the UK economy. We need a positive autumn statement that highlights immediate investment in infrastructure to help soften the blow to both consumers and businesses, and to encourage growth.”

Last month, the HR professional body CIPD warned that workers in the UK could be heading for “another period of very low or negative real wage increases” because of inflation.

Meanwhile, the UK is introducing a different measure of inflation to better reflect everyday price changes which will include the cost of owning a home, BBC reported.

The measure, called CPIH, adds changes to the cost of owning a home to other price changes tracked in the consumer price index.

The Office for National Statistics said it would become the preferred measure of inflation from March 2017.

Caption

Increasing inflation is expected to continue in the coming months.

 

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