Inflation hits 9.4% – industry reaction

Rising food and fuel prices sent CPI inflation to a fresh 40-year high of 9.4 per cent in June.

The latest inflation rise was driven by the sharpest single month rise in petrol prices since at least 1989 and food price inflation, which hit a 13-year high 9.8 per cent.

Inflation is expected to increase in the energy price cap to be announced in August and is estimated to rise to over £3,000.

Commenting on the inflation. rise, Joanna Elson CBE, Chief Executive of the Money Advice Trust said “The unrelenting rise in costs, with inflation now at 9.4 per cent, is increasing pressure on all households, with the impact not felt equally. With further substantial energy price rises around the corner, our fear is that for people on the lowest incomes, the worst is yet to come.

“Four out of ten people we help already do not have enough coming in to cover essential costs, with callers to our Business Debtline facing a similar challenge. And for those that do have a small amount left at the end of each month, this amount is continuing to decrease.”

“The Government’s support, which many households will have started to receive, may provide some short-term relief – but for those on the lowest income this will not be enough. Further targeted support is needed, including significantly raising benefits.”

Meanwhile, the Resolution Foundation notes that there is a 1.5 percentage point cost-of-living gap between the richest and poorest tenth of households, with the latter experiencing an inflation rate of 10.6 per cent (compared 9 per cent for the richest tenth).

Jack Leslie, Senior Economist at the Resolution Foundation, said “Rising petrol and food prices sent inflation ever closer to double digits last month. But this is already a reality for low-income families as they spend a greater share of their budgets on essentials like food and energy bills.”

“While high inflation won’t last forever, it is likely to be with us for some time as energy bills soar again this winter. This will mean further falls in real pay.”

ONS Chief Economist Grant Fitzner said “Annual inflation again rose to stand at its highest rate for over 40 years. The increase was driven by rising fuel and food prices, these were only slightly offset by falling second-hand car prices.”

“The cost of both raw materials and goods leaving factories continued to rise, driven by higher metal and food prices respectively. These increases saw raw materials post their highest annual increase on record, with manufactured goods at a 45-year high.”

Kitty Ussher, Chief Economist at the Institute of Directors, said “The headline inflation figure continues to be driven by the increased cost of household fuel and transport, combined with higher prices in the hospitality sector compared to a year ago.”

“The latest monthly increase is primarily due to the rising price of petrol, with the average price of a litre rising by 18p in June. The last month has also seen a price rise in some detailed food categories notably dairy products, where prices had fallen a year ago.”

“Much of the explanation for the inflation rate is international. But given that further rises in the headline rate are expected when the household energy cap is increased in the autumn, the Bank of England is nevertheless feeling the pressure to demonstrate it is doing everything within its power to tackle those components of inflation that are home-grown.”

Douglas Grant, Group CEO at Manx Financial Group PLC, said “Today’s unwavering rise in inflation yet again signals just how difficult the remaining half of the year is going to be. We believe that demand for working capital, which has already reached unprecedented levels, will soar even further as more businesses desperately require liquidity provisions to counteract rising interest rates, supply chain issues, increases in wages and additional pandemic-induced headwinds. With the cost of borrowing set to increase, many SMEs are struggling and will continue to be challenged this year.”

“Having successfully deployed multiple relief schemes – BBLS, CBILS and RLS – for SMEs throughout the pandemic, the UK government should, in our opinion, now turn their attention towards a permanent loan scheme to help leverage businesses going forward. Now is a vital time for the Government to work together with traditional and alternative lenders to guarantee the future of our SMEs and to ensure the successes of these emergency schemes are not wasted.”

“As we look towards the post-pandemic era many SMEs are at a critical tipping point, some between failing and surviving, others between surviving and thriving. As the government looks for ways to power the economy’s resurgence, the importance of a permanent scheme cannot be understated, it could act as the fundamental difference between make or break for many companies, and in turn, our economy. SMEs would be well-advised to take stock of their current capital structure and if appropriate, access fixed term, fixed rate loans to prevent additional exposure to an increasingly volatile lending market.”

Ed Rimmer, CEO of Time Finance said “While we have become used to the news of inflation rising month on month, more and more businesses will feel the strain and struggle to make ends meet. The latest rise will only make this worse.”

“When inflation hit 9.1% in June, one in ten businesses we spoke to told us that they’re unable to meet their financial commitments and one in five said they were struggling to remain competitive without increasing their own costs. These were worrying statistics at the time, and it’s unsettling to consider how much worse this will get if the Government doesn’t intervene soon and provide businesses with some breathing room to regain financial control.”

“The upcoming campaign encouraging businesses to reduce their prices fails to tackle the root of the issue and will not only be a threat to their survival, but the economy. Businesses simply don’t have the financial capacity to absorb their rising costs, and without proper and viable support their overheads will be squeezed ever tighter. Not only will they struggle to keep up with operational costs such as paying their employees or suppliers, and buying stock or materials, but some sadly just won’t survive.”