Policy Spotlight with Rhouda: Has the surge in Inflation raised UK prospects of a Recession?

As UK inflation hits 9% – an eye-watering 7% more than the Bank of England’s target – businesses across the country have felt the growing cost of doing business as well as the damaging squeeze on their ability to invest and operate at full capacity.

April’s inflationary surge reflected the continued upward pressure on prices ranging from higher energy and commodity costs as well as the energy price cap and the reversal of the VAT reduction for hospitality.

Head of Economics at the British Chambers of Commerce, Suren Thiru, believes that the rate of inflation and its damage to key drivers of UK output such as consumer spending and business investments means there is a real chance the UK will be in recession by the third quarter of the year.

Sara Williams, CEO of Staffordshire Chambers of Commerce, said: “The cost of doing business crisis must be resolved if the UK economy is to develop and progress through these challenging times. The government must provide financial support to firms, especially SMEs who are particularly struggling to cope with higher raw material prices, higher national insurance contributions and less consumer spending.

“Soaring inflation means that a rise in interest rates in June is inevitable, however, the increase in interest rates is unlikely to address the global factors driving the inflationary surge, instead it risks undermining business confidence and aggravating the financial squeeze on both consumers and businesses.”

As prices are increasing faster than the average income and purchasing power continues to erode, the higher cost of living and doing business will continue to impact the country’s economic growth.

The Bank of England has stated that the painful squeeze on living standards which has primarily been driven by soaring energy prices is set to intensify and will consequently push the UK into a recession later on in the year.

Although surging global energy and commodity prices aren’t directly in the UK government’s control, offering financial support to consumers and businesses through this difficult period will undoubtedly ease the burden and pressures that they are currently facing.

By reversing the National Insurance contributions and cutting VAT on business energy bills to 5%, firms will be in a stronger position to grow, invest and support their staff.

You can join the conversation now on our Virtual Members’ Lounge around inflation by answering the anonymous poll or by sharing your thoughts in the comments section: https://lounge.staffordshirechambers.co.uk/discussion/920/have-you-felt-the-impacts-of-inflation-on-your-business.

If you want to talk to us about business issues highlighted above, or any other issues including funding, you can call our switchboard on 01782 202222 or email rhouda.elalfy@staffordshirechambers.co.uk.

Quarterly Economic Survey

Our own quarterly economic survey for quarter 2 of 2022 launched last week, acting as a barometer of business sentiment across Stoke-on-Trent and Staffordshire. Businesses that take part in the survey will help to shape and influence current policy thinking as the data is shared with the BCC, government departments including HM treasury and the Cabinet Officer as well as the Bank of England.

We want to hear from firms of all shapes and sizes as this will help us to portray an accurate picture of the current business landscape. We understand your time is precious, even more so now, so thank you to all those who complete the survey!

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