Inflation falls slightly – business industry reaction

Latest Office for National Statistics (ONS) figures have shown that inflation, fell to 10.5% in the year to December, compared to 10.7% in November.

The drop was due to fuel prices falling along with clothing and footwear prices, however, this was offset by rising costs in restaurants and hotels. The cost of food also continued to rise and there was a big jump in air fares.

Commenting o the inflation figures for December, ONS Chief Economist Grant Fitzner said “Inflation eased slightly in December, although still at a very high level with overall prices rising strongly during the last year as a whole. Prices at the pump fell notably in December, with the cost of clothing also dropping back slightly.”

“However, this was offset by increases for coach and air fares as well as overnight hotel accommodation. Food costs continue to spike with prices also rising in shops, cafés and restaurants.”

Kitty Ussher, Chief Economist at the Institute of Directors, said “It is reassuring that the headline rate of inflation continues to fall, driven by an easing of petrol prices in the last few months. However, there are still considerable inflationary pressures in the economy: annual food prices are rising at an ever-increasing rate, up from 16.4% to 16.8% in December. The rate of price increases in the restaurants and hotels sector also continues to climb, up from 10.2% to 11.3% in the month.”

“Institute of Directors surveys show business leaders remain very concerned about the high rate of inflation. Given the persistence of domestic price pressures it would therefore be appropriate for the Bank of England to continue raising rates until these are brought under control.”

Alan Thomas, UK CEO at Simply Business “A fall in inflation rates is welcome news but it’s important to recognise that small business owners will remain under huge pressure from soaring interest rates, increased costs, and a turbulent economic climate.”

“Our recent research shows that a quarter of SME owners are already worried they will be unable to pay their bills going into 2023. The government’s announcement repealing energy support promised to small businesses will have raised alarm bells amongst the SME community given that 70% of SME owners believe rising energy costs pose the single biggest threat to their survival.”

“The Prime Minister set out as a priority for the government to halve inflation, which was welcomed by many small businesses, however, inflation is still at the highest level the UK has seen in years. Many small businesses don’t have the luxury of waiting another six months for inflation to stabilise, they are feeling the pressure more than most – with many struggling to pass on rising costs to their own customers, they are inevitably feeling the squeeze.”

“This comes at a time when many are still in recovery mode – one in six SMEs believe they will never financially recover from the impact of the pandemic. And with soaring energy prices and a cost of living crisis now hitting owners hard, many are rightfully calling for long-lasting financial support from the government.”

Tommaso Aquilante, Associate Director of Economic Research at Dun and Bradstreet said “It is vital to understand that a decline in inflation does not automatically mean a reduction in prices. Rather, prices continue to rise, albeit at a slower rate. Thanks to a mild winter, energy prices have decreased substantially, which may lead to a sharp drop in inflation during Q2 2023, given other factors remain constant.”

“Despite this, interest rates are likely to keep rising, potentially as early as the February meeting of the Bank of England. However, financial conditions are already tight and wage growth, though increasing, remains slower than inflation, giving the BoE some reassurance on the risk of a wage-price spiral dynamic in the UK economy. The overall economic outlook remains negative, and it is imperative for companies to maintain a holistic view of their supply chain, financial pipeline, partners and customer needs to navigate the current challenges effectively.”