Small businesses are bracing for yet another squeeze after official figures showed UK inflation rising faster than expected in July.
The Consumer Prices Index climbed to 3.8 per cent, up from 3.6 per cent in June, the Office for National Statistics confirmed this week. Analysts had forecast a smaller jump to 3.7 per cent, but the rise – the sharpest since January – was driven by higher transport costs and a renewed surge in food bills.
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In a BBC News report, ONS chief economist Grant Fitzner pointed to a “hefty” 30.2 per cent leap in air fares between June and July – the biggest increase for that period since records began in 2001. Meanwhile, food inflation accelerated to 4.9 per cent, the highest rate since February last year, after months of stubborn increases in grocery prices.
For small and medium-sized enterprises, which employ more than half of the UK workforce, the latest inflation surprise compounds months of pressure. Supply chains remain costlier to run, wage bills have risen following April’s increase in the minimum wage, and the government’s National Insurance hike has further tightened margins.
Mike Randall, chief executive of Simply Asset Finance, said the new figures would be “unwelcome for many”, warning that the combination of higher prices and policy changes risked holding back growth. “This comes at a time when businesses are still grappling with April’s NI hike, and speculation looms around further cost increases in the Autumn Budget,” he said. While some SMEs remain cautiously optimistic, Randall added, “the Government now needs to recognise the untapped potential at its fingertips” and help create an environment that rewards investment.
Douglas Grant, chief executive of Manx Financial Group, was more blunt. He warned that inflation “will weigh heavily on SMEs which are already struggling to absorb higher operational costs, squeezed profit margins, and expensive borrowing.” He noted that although the Bank of England’s recent move to cut its base rate to 4 per cent may ease some pressures, “the impact for UK SMEs remains limited” while access to finance remains tight.
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By GlobalDataThe picture is no brighter for households. Cornwall Insight expects the average annual energy bill to rise by £17 to £1,737 in October when Ofgem’s new price cap takes effect, despite falling wholesale gas prices. Economists caution that higher utility costs, on top of steep food price rises, will continue to erode consumer spending power – an additional blow for small retailers and hospitality businesses.
Looking ahead, attention is turning to Threadneedle Street and Whitehall. The Bank of England has already signalled inflation could hit four per cent in September, double its target. That complicates the case for further rate cuts, even as business groups argue looser monetary policy is needed to revive growth. Meanwhile, the Chancellor faces mounting calls to use the Spring Budget to offset cost pressures, but with fiscal headroom narrowing, expectations are tempered.
For now, SMEs are left waiting for clearer signals. As Grant warned the inflation announcement, “underlines the likelihood that future government support to SMEs will be a necessity.”
