Back in May 2021, the government’s roadmap out of lockdown saw coronavirus restrictions eased as UK consumers looked forward to spending their “accidental” lockdown savings.

That month, the Consumer Price Index (CPI) crept above the Bank of England’s (BoE) 2% target, to 2.1%.

Since then, and aside from a couple of isolated, short-lived dips, inflation has been soaring.

In July 2022, it reached a 40-year high of 10.1%. This figure also marked the first time inflation had hit double figures since 1982.

As food and petrol prices rise, and domestic and non-domestic energy bills rocket, what does rising inflation mean for you and your small business?

Keep reading to find out.

Many factors combined to create the current cost of living crisis

As developed economies relaxed coronavirus restrictions, experts anticipated a surge in spending. In December 2020, the Guardian reported that UK consumers had £100 billion saved and were ready to spend to help the country’s economic recovery.

When restrictions were lifted in the summer of 2021, however, global supply chain crises and UK labour shortages saw food and fashion prices soar.

In October, perceived petrol shortages led to a media-charged “panic at the pumps”.

By 2022, issues with China’s second-largest property developer, Evergrande – not to mention the country’s zero-Covid stance – were hampering the country’s growth. This had a knock-on for global markets. Then came Russia’s invasion of Ukraine.

The upshot of each factor has been a rise in inflation.

Source: Office for National Statistics (ONS)

With inflation currently at 10.1%, the BoE recently released its latest Monetary Policy Report.

The BoE raised its base rate by 0.75%, the highest single rise since 1989. It now stands at 3%, with the BoE warning of the longest recession since the 1930s.

Inflation is forecast to peak at 11% before the end of 2022.

Rising inflation affects every department of your business

1. Employee support and the effect of rising wages

Wages were already on the rise for many businesses as a result of the coronavirus pandemic.

Lockdowns, furloughing, and increased flexibility in certain sectors caused many UK workers to reassess their priorities. This in turn led to the “Great Resignation”, which many suggest is still ongoing. More than a third of workers have looked to change jobs during 2022.

With inflation high, many employees will be struggling to make ends meet and there’ll be increased pressure to raise wages. Strike action across many sectors highlights the precariousness of the situation currently.

2. The impact of soaring energy bills and rent

As household energy bills rocket, so too do those of your business.

The government’s Energy Bill Relief Scheme remains in place. It caps electricity and gas prices at a discounted rate (£211 per megawatt hour (MWh) for electricity and £75 per MWh for gas).

The above figures apply to non-domestic users in Great Britain only and discounts apply until 31 March 2023 when a review is due.

Rising energy bills will stretch the finances of your business over the coming months, especially as the cost of borrowing is set to rise too.

3. Supply chain issues, labour shortages, and a falling pound

Global supply chain issues, exacerbated by Russia’s invasion of Ukraine, and Brexit labour shortages helped to increase inflation.

In turn, rising inflation has led to increasing interest rates. The effects of the government’s short-lived Growth Plan 2022 also played a part in devaluing the pound as measured against the US dollar.

A falling pound makes the goods you import more expensive, while if your business chiefly exports, you might have seen sales increase.

The UK is a net importer, meaning a devalued pound is largely bad news. Costlier imports could help to push inflation even higher.

The BoE’s recent (and eighth consecutive) base rate rise is a bid to control inflation.

Keeping on top of your personal finances is crucial

The cost of living crisis will be influencing the decisions you make in your business, as well as having an effect at home.

Juggling both isn’t easy. This could be especially true where your business and personal finances are intrinsically linked, whether through a direct loan or your pension, for example.

Simple steps like keeping on top of household budgeting are key. At Boolers, we can help you revisit your budget to uncover the areas where savings can be made and where disposable cash can be unlocked.

It might be tempting to concentrate only on the present when times are hard, but this could mean neglecting your future self. If you need help calculating the best way to maintain pension contributions – or you’re worried about the risk attached to your investments – be sure to speak to us.

Get in touch

With inflation rising alongside interest rates, the UK is headed for a recession. This will bring challenges for you and your business.

At Boolers, our decades of combined experience mean that we can help you to navigate the tough economic landscape, helping your business to grow while your personal financial goals remain firmly on track. If you have any questions or concerns, please contact us today.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.