Inflation falls to 6.8% – business industry reaction

17th August 2023

The Office for National Statistics (ONS) has published its latest Consumer Prices Index, which shows the rate of inflation was 6.8 percent in the 12 months to July 2023, down from 7.9 percent in June.

Commenting on the inflation figures for July, ONS Deputy Director of Prices Matthew Corder said “Inflation slowed markedly for the second consecutive month, driven by falls in the price of gas and electricity as the reduction in the energy price cap came into effect. Although remaining high, food price inflation has also eased again, particularly for milk, bread and cereal.”

“Core inflation was unchanged in July, with the falling cost of goods offset by higher service prices.”

Martin McTague, National Chair of the Federation of Small Businesses (FSB) said “While a drop in inflation provides some comfort, today’s figures show less of a drop in inflation than hoped for, and will renew fears of a wage-price spiral, and of yet more base rate hikes in future. The worry now is that rising wages ignite a fresh wave of inflation in September, which will threaten the momentum from June’s GDP growth.”

“The cost of doing business crisis still has a grip on the small business community, as prices for many key inputs, from energy to components and raw materials, remain far above where they were a year ago. Any reduction in inflation is good news, but the huge toll that spiralling prices have inflicted is still being keenly felt by small firms.”

“Despite the inflationary pressures that we’ve seen for more than a year, more small businesses have seen their revenues shrink over each of the last five quarters than have seen them increase.”

“Small business confidence levels fell back in the second quarter, with stickier-than-expected inflation alongside interest rate increases playing a major part in that. We very much hope that these inflation figures continue on a downward trend in Q3, to give confidence among small firms a chance to recover.”

“Yesterday’s record wage increase figures will however make the path back to lower inflation and lower interest rates more complicated, while the news that GDP rose by 0.5% in June makes the job of maintaining recovery while bearing down on inflation a tricky one.”

“With low interest rate deals on loans and finance options near-impossible to find, small firms looking to grow will be keeping their fingers crossed that the end of base rate rises is in sight.”

“We’re calling on the Government to use the rest of the summer to plan a growth agenda for small firms, and tackling late payment should be top of the list. Having to chase overdue payments is a huge drain on small firms’ resources, increasing their cost of doing business and making them more likely to have to apply for finance to manage their cashflow.”

Dr Roger Barker, Director of Policy at the Institute of Directors, said “It will be a relief to business leaders that the headline rate of inflation is continuing its downward trend. However, any celebrations will be blunted by concern that the core rate of inflation, which excludes energy and food prices, is entirely unchanged. This month’s headline drop was primarily a result of the scheduled readjustment of the energy price cap.”

 “It’s hard to avoid the conclusion that inflation has to some degree become embedded into the behaviour of businesses and consumers. This was reflected in yesterday’s figures for annual wage inflation. Getting back to the Bank of England’s 2% inflation target will be a challenging process.”

Suren Thiru, Economics Director at ICAEW said “Although these figures provide reassurance that the inflation tide has turned, this latest drop owes more to lower energy bills, following the reduction in Ofgem’s energy price cap, than to a broader easing of price pressures.”

“It’s encouraging that pay is outpacing price growth, but any financial boost is likely to be swallowed up by higher taxes, borrowing costs and rent, so for most people this won’t feel like a turning point in the cost-of-living crisis.”

“While core and services inflation are proving harder to shift, they should fall back over the rest of the year as rising unemployment and tighter monetary policy help choke off demand in the economy.”

“Though another interest rate rise in September looks inescapable, this drop in inflation may drive a more notable voting split in the Monetary Policy Committee next month, particularly as worries over the UK economy grow.”

Arun Singh, Global Chief Economist at Dun and Bradstreet said “It’s encouraging to see the rate of inflation slow to 6.8% in the UK, from 7.9% the month before – the lowest level since February of last year. However, the fall was largely the result of falling energy and food prices as core inflation which strips out these items remained unchanged at 6.9%. Our recent research shows that a quarter of business leaders see weakening consumer demand as the most significant threat.”

While the battle against inflation seems not yet over, businesses need to become more resilient and adaptable to changes in the market. With unpredictable shifts now the norm, having access to data-driven insights to adapt quickly in times of economic uncertainty can help businesses stay stable and even grow. So, while we’re getting some breathing room from reduced gas prices, businesses should keep in mind that inflation and interest rates are pieces of a larger economic puzzle. Those that emphasise resilience are likely to fare better in these trying times.”