Inflation up to 9.4% – is it time for more intervention?

According to the latest figures from the Office for National Statistics (ONS), the UK inflation rate has risen again to 9.4% in the year to June.

This is the ninth month in a row that the inflation rate has gone up and also the highest the rate has been in 40 years.

Rising fuel prices were the biggest contributor to higher inflation. Petrol prices rose by their biggest amount since records began in 1990: 18.1p over the month.

Yesterday, it was announced that pay in the UK was falling at a record rate, giving an indication of the financial stress that many UK households are finding themselves in.

The Bank of England has previously raised interest rates to 1.25% in order to combat rising inflation, and Michael Saunders, who is on the bank’s monetary policy committee (MPC), believes it could top two percent in the next year.

Industry reaction

Chris Ronald, VP EMEA Incentives & Rewards at Blackhawk Network, says benefit schemes could be the support employees are looking for during the current climate.

He comments: “Employers must be doing more to support their staff through the cost-of-living crisis. As our recent research shows, only 5% of employees believe their employers are doing enough. This is a worryingly low statistic given that a staggering 63% of employees have claimed they would leave their current job for better benefits and financial support to help combat the current crunch climate.

“We are currently experiencing the biggest cost-of-living crisis the UK has seen in decades, and, as we head to recession, it’s fair to say it has shown no sign of slowing down. Couple this with the struggle employers are facing to retain staff due to the Great Resignation, and the pressure to retain talent and keep staff happy is at an all-time high.

“But not all hope is lost. Almost three-quarters (73%) of employers state that prospective employees are looking for employee benefits as part of the solution to the crisis. This wake-up call shines a light on the fact employers need to ensure current employees and prospects are aware of the benefit packages there on offer to support them during this turbulent time. It’s time to take action.”

Matt Roche, Associate Investment Director at Killik & Co, says investment can “inflation-proof” your money.

He says: “Consumers continue to be hit by inflationary pressure. With food and energy costs rising, households are needing to dig into reserves and cut back on discretionary spending.

“While much of the inflation had its roots in the reopening of the global economy following Covid, before being further fuelled by Russia’s invasion of Ukraine, the challenge for The Bank of England is to stop this inflation becoming embedded. As such, further interest rate rises are anticipated.

“Nevertheless, with inflation expected to reach 11% by autumn, the purchasing power of savings in bank accounts is being rapidly eroded. In this environment, savers should look at investing as a means of inflation-proofing their money.

“While it is advisable to keep a cash buffer for emergencies and plan major outlays well in advance, surplus monies can be made to work harder. For example, a Stocks & Shares ISA can provide excellent tax-efficient long-term returns. With share prices having generally fallen in 2022, global stock markets now look that much more appealing for lifetime savers.”

Ross Gandy, UK Managing Director at Estateguru, looks at the challenges of securing finance currently facing SMEs.

He comments: “Yet another increase to inflation spells bad news for the UK’s SMEs. Small businesses with strict budgets are under growing financial pressure, contributing to a rise in demand for working capital. However, somewhat ironically, it becomes much harder for SMEs to secure financing during times of economic challenge. Financial turbulence causes nervousness among traditional banks and their strict lending criteria often automatically blocks SMEs from securing the funding they need.

“Small businesses that find themselves in this situation can turn towards alternate lending as a second option. Alternate lenders use a holistic approach to underwrite each application on a case-by-case basis, factoring in an SME’s needs to find a solution that’s most effective for the business. Alternate lenders recognise that the tick box method used by traditional banks isn’t inclusive to start-up businesses still finding their feet and they instead adopt a more considered approach to generate the best result for their client.”

Amanda Salt, Vice President for UK SME Sales, Global Commercial Services UK at American Express, said: “With the UK’s inflation rate continuing to grow, rising costs are adding to pressures already felt by small businesses. American Express’s latest research shows that as a result of increasing prices, UK SMEs’ relationships with their customers are evolving, with 60% of SMEs saying their customers’ expectations are increasing and 52% stating their customers are increasingly driven by price. However, SMEs are proving agile in response to this challenge, most notably by diversifying their customer offer and improving customer communication.

“But, whilst it’s great to see such dynamism and proactivity from business owners, many small firms have little in reserve following the pandemic. To continue striving for growth, SMEs must stay laser-focused on managing their costs and cash flow, ensuring they’re prepared and able to respond to what their customers want. Ultimately, the businesses that scrutinise their operations, proactively take action to adapt to current challenges, in tandem with going the extra mile for their customers, will secure a competitive advantage and will come out on top in the long run.”

Brian Perkins, President at Budweiser Brewing Group UK&I requests more support from the government.

He says: “Today’s ONS inflation figures demonstrate the need for more Government support for the brewing industry and details on their plans to ease economic pressures on the hospitality industry. Like many other businesses, we have been hard hit by commodity price increases and import taxes for beer have increased above average.

“We know that beer is hugely important to the UK economy, especially in driving the post-Covid recovery. In the UK, the beer sector as a whole is responsible for nearly 900,000 brewing and pub jobs, and the value of these jobs to the UK economy is £22.9 billion. At Budweiser Brewing Group, we are committed to supporting the long-term recovery and resilience of the hospitality sector, as well as driving forward our shared prosperity for our partners and communities and producing the UK’s most sustainable beers.

“The key to driving this forward will be further government support. On behalf of the industry, we hope the Government will recognise the importance of brewing to the economy and reduce beer tax, delay DRS and other packaging taxes as well as provide ample incentives for companies to invest in sustainability and the path to net zero – to help protect our industry, our people and our planet, as we continue to weather these economic storms.”

Neil Manhas, Managing Director and Chief Financial Officer at Pizza Hut UK and Ireland, also wants additional support for the hospitality sector:

He comments: “As inflation figures continue to rise in an uncertain political landscape, pressure on the hospitality sector mounts. Our industry is navigating continued labour shortages, skyrocketing food, fuel and utility prices and supply chain disruption. This coupled with softening consumer confidence is a heady cocktail – and is making the day-to-day for businesses such as ours very difficult.

“Growth is a key driver of economic recovery – and we want to continue playing a role. At Pizza Hut, we want to realise our development plans to both create and protect jobs and support our communities and consumers. To do this, we need the new Government to prioritise protections for businesses that provide opportunity, including by lowering VAT back to 12.5%.”

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