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How Rising Inflation May Affect Your Business

May 2022

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With UK inflation having risen to its highest level since 1982, you may wonder what effect this may have on your business. In this article, we have highlighted the main ways this could potentially affect your business, and most importantly, what we can do to help.

Inflation is the gradual decline of a currency’s value over a period of time, which subsequently leads to an average price increase of goods and services. Last Wednesday, the Office for National Statistics (ONS) announced that the Consumer Prices Index (CPI) had risen to 9%, an increase of 2% since the 7% recorded in March. 

Why is inflation so high?

The biggest contributor to inflation has been the rise in energy bills. This has largely been caused by the post-lockdown increase of oil and gas prices, and further exacerbated by the impact of the Ukraine conflict. The sharp increase in the cost of fuel has also contributed to the rise in inflation after average petrol prices hit 161.8p in April 2022 – the highest on record. 

For some UK businesses, the rate of VAT has increased after the regular 20% rate was reduced for hospitality and tourism firms during the Coronavirus pandemic. However, the standard rate was reinstated on April 1st 2022. 

Rising inflation can cause uncertainty when salaries aren’t accommodating to the pace at which inflation is rising. This then leads to an increase in the cost of living when customers are being charged higher prices for goods while maintaining the same wage. 

How could this affect my business?

The impact of rising inflation will vary depending on the business type and size. Mild inflation can often be an opportunity for consumer focused businesses as it can incentivise customers into purchasing goods and services before prices continue to rise. However, as inflation grows, this may lead to spending cutbacks for consumers – meaning a decrease in the sales of goods and services for businesses. 

Global enterprises that trade internationally are likewise affected by inflation. When inflation in the UK is higher than it is abroad, goods in the UK become more expensive, leading to a decline in demand for UK goods.

Some businesses may also be required to deliver higher wages to employees in order to compensate for the rising living costs, meaning other business expenses may need to be cut in order to retain staff

How can we help?

Our team of accountants can assist and advise you on the ways your business can minimise the impact of inflation. Contact us today for a free, no obligation consultation and one of our friendly advisors will be in touch.

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