Why UK is facing a ‘cost of doing business crisis’

CHAMBER FEARS PERFECT STORM OF PRICE RISES AND LESS TO SPEND

Spiralling energy costs are a particular worry for businessess. Every price hike squeezes their margins

Scott Knowles, pictured, of East Midlands Chamber

THE UK is headed for a potential crisis over the spiralling cost of raw materials, labour, shipping and energy..

East Midlands Chamber warned the rise in the cost of living was creating a perfect storm of higher prices combined with households having less to spend due to rising energy bills.

UK inflation has reached its highest level in 30 years, topping 5.4 per cent in December.

The Office for National Statistics said the rate was pushed higher by food and non-alcoholic drinks prices last month, while costs also rose for restaurants and hotels, furniture and household goods, as well as clothing and footwear.

Household finances are being squeezed across the board as gas and electricity tariffs have seen large rises while supply chain problems are pushing up costs across the economy.

The Bank of England has forecast inflation to hit 6 per cent in April – not far short of the 7.1 per cent recorded in March 1992.

The figures come amid mounting pressure on the government to help with rises in gas and electricity bills.

East Midlands Chamber chief executive Scott Knowles said the impact on the economy was a real concern as the nation slowly makes its way out of the pandemic.

He said: “It feels like we are dangerously close to a very real cost of doing business crisis that, if it continues unabated, could have a profoundly negative impact on the region’s economic recovery. “Spiralling energy costs are a particular worry for businesses.

“In the East Midlands, we have a high proportion of energy-intensive firms in industries such as manufacturing and engineering, so every price hike squeezes their margins. “This ultimately affects their ability to create jobs and wealth locally, as well as increase wages for their employees, who will bear the brunt of rising inflation at home.

“Remember, these individuals are also the customers of other businesses and services, so their diminished spending capacity has a huge knock-on impact.

“Our most recent Quarterly Economic Survey illustrates the anxiety many of our region’s businesses are feeling, with the proportion of those concerned about price rises – in everything from raw materials to staffing – growing from 46 per cent to 62 per cent between the third and fourth quarters of last year.

“Some of these are global pressures – the rebound from the 2020 slowdown is putting pressure on material supply from China to the US – and out of our own control, but others are of our own making. “The looming national insurance hike, forthcoming energy price cap increase and reversal of VAT reductions for hospitality means this problem isn’t going away, with the British Chambers of Commerce fore casting inflation to push well above 6 per cent by April – putting businesses under mounting pressure to continue raising prices.

“It is crucial the government’s Supply Chain Advisory Group and Industry Taskforce provides real-world solutions to the supply and labour shortages that continue to drive the upward pressure on consumer prices, while Westminster must be minded to ensure it doesn’t place any additional costs on businesses and individuals for the remainder of this Parliament.”

Samuel Tombs, at Pantheon Macroeconomics, said December’s inflation figures leave the Bank of England with “little choice but to raise rates again in February”.

He said CPI is likely to peak “slightly above” 6 per cent in April.

He said: “Nonetheless, we continue to expect CPI inflation to fall back swiftly after April and ultimately to under-shoot the 2023 per cent target in 2023.”