Inflation in the UK and 5 actions you can take now
By Simon Middleton, Business Relationship Manager
Inflation at its simplest is the term used to describe rising prices. With costs continuing to increase at their fastest rate for 40 years, inflation in the UK is having a fundamental impact on businesses across the region.
In May 2022, Barclays’ SME Barometer – a quarterly survey of business sentiment conducted for the bank – found that three-quarters of small and medium-sized companies were worried about the impact the cost of living crisis, soaring energy bills and rising inflation will have on their business.
In this article, I explain more about how the rate is calculated, the impact of high inflation, and ways in which you can protect your business.
How is inflation in the UK calculated?
The rate of inflation is determined every month by the Office for National Statistics (ONS) who check over 700 services and goods that are standardly bought in our country. This could be as small as a loaf of bread to more major purchases like a car.
The overall cost of that generates the Consumer Prices Index (CPI). By comparing what the CPI is now to what it was a year ago, the ONS are able to determine the rate of inflation. So, with inflation at 9% or higher, an item that cost £10 last year would now be expected to cost around £10.90. Plus, the higher the value of the item, the bigger the increase would be.
Why is high inflation in the UK a problem?
The Bank of England is targeted by the Government to keep the rate of inflation in the UK at around 2%, which supports a more stable economy because people and businesses can organise their finances more effectively.
While fluctuations are expected, unstable and high rates can be harmful as the unpredictability makes it difficult for people and businesses to plan how they will spend, save and invest their money. In extreme cases, it can even lead to an economy collapsing altogether.
In the region, I am helping business owners who are facing common issues arising from the surging rate of inflation in the UK. Supply shortages, increases in materials and shipping costs, as well as supply chain delays, are leading to missed contracts and over-stretched cash flow.
As well, employee costs are rising as workers ask for wage increases to cover higher living costs. Alternatively, they are choosing to move to new positions that pay more or require less travel in order to lower fuel-related costs. As a result, labour shortages are also emerging, especially is less connected rural areas.
What you can do
Taking advice from North Yorkshire-based accountants M Wasley Chapman, the good news is that there are some simple steps you can take in your business to tackle rising inflation in the UK:
1: Undertake a costs review
Review spending across all areas of your business. How much control is being taken over the spending and costs that are going out of the business?
2: Identify immediate gains
Are there any that can be made by changing suppliers, negotiating new rates, or stopping some costs altogether? Can you also use funded opportunities to upskill your workforce in key areas rather than outsource?
3. Look at your profit
Identify the most profitable revenue streams in your business. If you’re not generating profit from each and every customer then you have to question why you are supplying them unless there is a longer term objective in mind.
4. Evaluate your pricing
This might be something you look at first but it must be considered from various angles and the effect it will have.
> Watch now: How Much? – A Guide to Setting your Prices at the Right Level
5. Speak to an expert
Working with an expert such as an independent accountant can help you with monthly management and planning services not just your traditional year-end accounts.
Get support
If rising inflation in the UK is affecting your business, we can help. At York & North Yorkshire Growth Hub, we provide tailored advice through our helpdesk and business relationship managers or we can signpost you to the right support to help you overcome the challenges you are facing. You can call us on 0800 246 5045 or complete the form below and a member of our team will be in contact.
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