Inflation figures: what they means for business

The ONS has now confirmed that inflation dipped to 8.7 per cent in the 12 months to April, down into single digits from the 10.1 per cent recorded in March.It’s the first time inflation has dropped below double digits since August last year.

The decline was driven by gas and electricity costs remaining stable in April but concerns remain over the rate at which food prices are rising, albeit at a marginally slower rate.

As for the effects on business, we spoke to three experts on what it meant, particularly for the SME sector.

Douglas Grant, Group CEO at Manx Financial Group, said the inflation figues, and the fact that the UK narrowly avoided a recession, shpuld mean economy could be showing signs of resilience.

Ryan: top concern

But he added: However, interest rate hikes and the latest flatlining GDP data continue to bring challenges that businesses are struggling to outmanoeuvre. Indeed, coupled with the global banking sector showing signs of weakness, SMEs must take this as a reminder to review their existing lending structures and ensure they can keep ahead of the storm.

“While many SMEs were proactive by locking their debt into fixed rate structures, it is now too late for other businesses that have borne the brunt of spiralling costs without a financial safety net. The government should intervene to mitigate the impacts on SMEs, which are the backbone of the UK economy.

“According to our research, 22% of UK SMEs that required external financing or capital in the past two years were unable to obtain it. Moreover, over a quarter had to temporarily suspend a business area due to inadequate funding. It is concerning that SMEs continue to face difficulties in accessing finance, which is impeding their growth potential and stalling the UK economy.

 After a year of damaging inflation, and with interest rates now at a 15 year high, the cost of doing business remains problematic

“We have been advocating for a permanent government-backed loan scheme that is sector focused and involves both traditional and non-traditional lenders to secure the future of our SMEs.

“As concerns mount over the future of the economy, the significance of implementing a permanent scheme cannot be overstated, it could serve as a critical factor in sustaining economic recovery and in turn, determine the survival of numerous companies.”

Thrower: right direction

Derek Ryan, Managing Director, Bibby Financial Services cited their own research that found 61% of small firms named inflation as a top concern so the “figures will come as a relief for small business owners, who have been hit hard by rising costs and reduced profitability.

“But it would be premature to assume we are out of the woods. After a year of damaging inflation, and with interest rates now at a 15 year high, the cost of doing business remains problematic. Many businesses are cash-strapped, struggling to pay back mounting loans, or even access the finance they need to survive. As a knock-on effect, bad debt and late payments are both rife throughout SME supply chains causing longer term issues.

“The UK’s small businesses are hungry to invest and to grow, but they need stability to help them do so. This means further security from the Government around the future of energy bills and a convincing response to tackling inflation. We may not be entering recession but we can’t rest on our laurels; fuelling small business resilience and confidence will be critical to getting the UK economy back on track.”

Grant: challenges

Adam Thrower, head of savings at Shawbrook said: “Inflation is finally heading in the right direction and leaving double-digits, which is certainly a welcome relief to all. However, at 8.7% the rate of price growth remains high. For savers, the recent Bank of England decision to raise the base rate represents another opportunity to protect their savings from inflation.

“Now is not the time to sleep on your savings rate. Our research has shown that half (47%) of savers haven’t switched to a better rate in the last year, largely due to the perceived time and effort needed, meaning apathy could be costing them hundreds, if not thousands.

But switching is quicker and easier than many might think and an effective way to reduce the impact of inflation eroding the value of your savings. With savings rates the highest they’ve been in years, there is no better incentive to shop around for the best deals in the market.“

Small firms still hammered by inflation

Interest rates analysed