Inflation jumps to 2.9% as energy bills bite again

              

 

This is an abbreviated article by Liz Barclay – read the full article at Business111.com/news

Inflation has climbed to 2.9% as rising energy and fuel costs feed through to household bills. For Britain’s small businesses, however, the headline figure tells only part of the story. Their own costs can be increasing considerably faster while customers have less disposable income to spend.

The rise from 2.6% in June has been driven heavily by energy, including higher gas and electricity bills following July’s Ofgem price-cap increase.

Petrol and other fuel costs have also added pressure, while clothing and furniture prices didn’t fall as much as normally expected during the summer sales.

There is some good news.

Food inflation fell to 1.3%, its lowest level for several years, as retailers continued discounting heavily. But drought conditions across the UK and Europe could put renewed pressure on food prices if agricultural yields suffer.

For small businesses, official consumer inflation doesn’t necessarily reflect what’s happening to their own bills.

Hospitality businesses, salons, retailers and other energy-intensive firms can experience much steeper increases in their operating costs.

At the same time, their customers are being squeezed.

When households have to spend more heating their homes, filling their cars and buying essentials, discretionary spending is often the first thing cut.

That means fewer coffees, restaurant meals, haircuts, flowers and non-essential purchases.

Small firms therefore get squeezed twice: their own costs rise while their customers have less money to spend.

Increasing prices isn’t necessarily the answer either. Many businesses are already reluctant to pass their full cost increases onto customers because they fear driving them away.

Interest rates offer little immediate comfort.

With inflation expected to remain above target and potentially rise further, hopes of substantially cheaper borrowing have been pushed back. That means overdrafts, loans and other business finance are likely to remain expensive.

Meanwhile, unemployment remains at 4.9% and wage growth is slowing, suggesting the economy is hardly overheating.

That leaves policymakers with an uncomfortable combination: energy-driven inflation alongside a weakening labour market and businesses reluctant to invest or recruit.

For small firms, the message heading into autumn is simple.

Expect higher bills, cautious customers and continued pressure on cash flow.

Inflation may officially be 2.9%.

For many small businesses trying to balance their books, it will feel considerably higher.

This is an abbreviated article by Liz Barclay – read the full article at Business111.com/news
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