As we approach the end of 2022, it wouldn’t be surprising or inappropriate for the publishers of the Oxford English Dictionary to crown ‘inflation’ as their Word of the Year.
According to the most up to date Consumer Price Index figures, inflation in the UK rose by 11.1% in the 12 months to October 2022, up from 10.1% in September 2022. While upward price pressure has become the norm since the outbreak of the conflict in Ukraine, it’s worth noting that these are the highest annual rates since the National Statistic series began in 1997.
With the UK economy now officially in recession, inflation will come to have more and more influence on national events. Last week’s Autumn Statement was a key example, with the Chancellor’s interventions on tax and public spending clearly geared towards releasing some of the pressure within the system. This weekend, the impact on consumer confidence will be easy to see through Black Friday spending.
Black Friday is traditionally a good indicator of where the market is and, critically for retailers, what type of Christmas they are going to have. Ominously, forecasts from Statista suggest that spending will be down by around 7.5% on last year; falling to £8.7 billion.
Consumer confidence has arguably held up incredibly well throughout the year given the headwinds consumers have faced. However, we have seen an overall downward trajectory in retail sales through the autumn, coinciding with domestic energy prices going up, which has dampened retailers’ expectations heading into the Black Friday weekend.
The freeze on income tax thresholds and the scaling back of energy subsidies in the Autumn Statement is likely to further subdue spending, so we may well come to view this Black Friday as the opening bell to a frosty winter for consumer outlay.
With this in mind, it will be particularly interesting to see how consumer wages evolve as we move into the new year and, for many firms, annual appraisal season. The latest figures suggest that total pay, including bonuses, has risen 6% year-on-year for the average worker. While wages aren’t increasing at anywhere near the rate of inflation, it’s clear that more is being demanded of employers to meet the increased cost of living.
The Prime Minister has already suggested that senior executives should show restraint on their own renumeration this year. However, there is also a delicate balance to be struck across the economy with the possibility of wage growth continuing to drive inflation; creating an unsustainable scenario where demand remains high despite increasing prices.
Consumer confidence is a powerful force and business leaders will need to be prepared for whatever impact it might have on their outgoings or order books in the coming months. It’s for this reason that we’ve put together advice to help management teams to take early action and defuse the inflation time bomb. The guide on managing inflation covers: