Inflation steady at 3.1% ahead of predicted surge in the cost of living

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The rate of inflation crept down slightly to an annual rate of 3.1% in September, according to official figures which are tipped to surge ahead in the months ahead and force the Bank of England to intervene.

The Office for National Statistics (ONS) said that rises in the cost of fuel last month, reflecting the impact of the delivery difficulties that sparked panic-buying, and wider increases across the economy were offset by falling restaurant and hotel costs as the effects of last year’s Eat Out to Help Out scheme fell away.

Economists had predicted the Consumer Prices Index (CPI) measure would remain at 3.2%.

But they warn that October’s figure is set to shoot up – driven by the 12% leap in the energy price cap at the beginning of this month and wider increases in the cost of goods and services linked to the COVID global supply chain disruption and worker shortages – the latter made worse by the government’s post-Brexit immigration rules.

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Commenting on the statistics,  Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said: “the dip in inflation reflects temporary data distortions rather than the reality on the ground.

“The slowdown was largely due to strong base effects caused by dining out costing less last month in comparison with September 2020, when prices increased following the end of the Eat Out to Help Out scheme.

“A renewed inflationary surge is expected in the coming months with the increase in the energy price cap, partial reversal of the VAT reductions for hospitality & tourism and persistent supply chain disruption. This is likely to push inflation above 4% by the end of 2021.

“Rising inflation could disrupt UK’s economic recovery by eroding consumers’ spending power and squeezing firms profit margins and ability to invest.

“While inflation is uncomfortably high, the Bank of England must hold its nerve on interest rates. Raising rates at a time of escalating cost pressures and looming tax rises would severely undermine an already fragile recovery.

“Although global price fluctuations aren’t typically something in the UK government’s direct control, more needs to be done to help businesses keep costs down and stay competitive. This should include a moratorium on all policy measures that increase upfront business costs for the remainder of this parliament.”

On the impact of September’s CPI inflation rate on firm’s business rates bills in the next financial year, Suren added: “Despite enduring the deepest recession on record, businesses are now facing a punishing rise in business rates in the next financial year because of soaring inflation.

“The chancellor should therefore use the upcoming budget to abandon the up-rating of business rates for at least the next financial year to avoid severely aggravating already diminished business cashflow and further damaging our high streets and town centres.”

Business Matters got the opinion of a number of business owners and entrepreneurs on the OPNS announcement: \Jay Mawji, Managing Director of the global liquidity provider IX Prime, commented: “Britain’s inflationary clouds continue to gather – but so far the storm has yet to break.

“The cost of living rose by a brisk 0.3% in September alone as fuel prices picked up sharply. Prices at the pump are now at their highest level for eight years.

“But the annual rate of CPI eased slightly, helped in part by some distorting effects from this time last year.

“At 3.1% CPI is still well above the Bank of England’s 2% target, and the Bank’s Governor this week dropped his biggest hint yet that he is preparing to act to tame inflation. But September’s surprise easing of inflationary pressure may now shift the Bank’s timings.

“A chorus of increasingly shrill warnings on inflation from businesses in all sectors, coupled with the Bank’s hawkish talk, had led some marketwatchers to predict a rate rise could come as early as November.

“But today’s softening of inflation, deceptive though it may be thanks to base effects, means the chances of a rate rise at the Bank’s next MPC meeting in a fortnight’s time have reduced.

“This is bad news for savers and won’t help the Pound, which had been steadily creeping up as traders priced in ever more likelihood of an interest rate rise. For November at least, all rate rise bets are off.”

Jamie Rackham, founder of Facebook group, NOT ON AMAZON, where nearly 150k indie makers sell their products for free: “With energy bills rising, inflation stubbornly high and tax rises to come, every penny counts. As a result of this, our community has grown faster than ever over the past month as members can promote their businesses and advertise their work on the page at no cost, which leaves more money in their pockets.”

Gillian Ferguson of Scotland-based Twisted Empire Bakes: “The energy crisis and high cost of living are piling ever more pressure on top of already drowning small businesses. One of my main ingredients has gone up by 25% and I supply the hard-hit hospitality sector so can’t put my prices up. I bake for a living and I’m worried about keeping the ovens on. Happy Brexit.”

Scott Gallacher, a Chartered Financial Planner at Leicestershire-based independent financial advisers, Rowley Turton: “Due to concerns about high inflation and potential labour shortages, we brought our annual wage rise forward to keep our staff happy. We are planning to absorb that cost rather than increase our fees. I’m not sure the Government raising interest rates would help, as inflation seems to be mainly due to supply issues rather than excess demand.”

Jez Lamb, founder of the Wirral-based craft beer marketplace, Beers @ No.42:” The answer to high inflation is simple for small business owners, right? Just whack up your prices to combat it and all’s well. Sadly that doesn’t work, as it risks losing you customers. It’s alright for the big boys as they have the financial strength to keep their prices low, but small business owners, as ever, have to take a hit on their real-world income and spending power.”sq§

Robert Walton, Managing Director of commercial interior specialist,  The Lindhurst Group”The economic recovery is too fragile to tolerate increased interest rates at this stage. While inflation is unhelpful, there needs to be institutional confidence to drive underlying growth. Unfortunately, we will be increasing prices for the first time in three years as margins cannot be eroded further if the business is to develop and invest for the future.”

Debbie Porter, Managing Director of Bakewell-based Destination Digital Marketing: “All costs are on the rise but for small businesses the decision to increase their own prices accordingly is a tricky one. At some point there may be no choice, but retaining customers is paramount at this time and it is a decision fraught with danger for small business owners.”