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Glimmer of light: Examining what interest rate rises mean for businesses

Inflation peaks but interest rates continue to rise

Over the past few weeks, we’ve been monitoring and sharing our thoughts on various economic indicators as businesses contend with a range of financial challenges this winter. As we head into the Christmas break, it’s perhaps fitting that this week we saw the first signs of a potential thawing in the icy economic conditions that have been pre-occupying management teams.

Many have already noticed falling prices on petrol forecourts, while the increased cost of other goods like clothing appears to be easing. Indeed, the latest Consumer Price Index figures, published on Wednesday, saw inflation fall at its sharpest rate in 16 months from 11.1% in October to 10.7% in November. While the rate of inflation remains particularly high, the fall was greater than many city analysts expected while being in line with predictions that inflation would peak before the New Year.

But while the figures offer a glimmer of hope, firms will need to be prepared for a difficult winter ahead. The Chancellor has said in the past week that he expects the UK’s economic situation to worsen before it improves, and that was reflected in the Bank of England’s latest interest rate review. The Bank raised rates for the ninth consecutive month with a 0.5 percentage point hike to 3.5%. The decision reflected a number of inflationary pressures that remain in the market – notably greater than expected wage growth as employers continue to support their staff through the cost-of-living crisis. Demand for workers continues to outstrip supply as well with the UK’s talent pool diminished since Brexit.

As mentioned in previous articles, a delicate balance will need to be struck to ensure rising wages don’t fuel further inflation.

Notably, the Governor of the Bank of England, Andrew Bailey, outlined that he doesn’t expect to see inflation falling away significantly until the spring at the earliest, so we will potentially still be exposed to double-digit rates (or near to) in the New Year. Management teams will therefore need to keep forward planning based on current conditions, factoring in reduced consumer confidence and the potential for volatility should the war in Ukraine intensify after the winter.

We’re continuing to support clients across a range of sectors and have produced a guide to help management teams to take early action and defuse the inflation time bomb.

The guide covers:

  • ​How to approach reducing and managing costs strategically to strengthen your business and give you the best outcomes.
  • Passing on cost whilst maintaining supplier relationships.
  • How to take control of the costs of the goods and services in the face of rising prices by fixing and locking in costs.
  • Your immediate action checklist, covering the essential actions you should take now to tackle inflation.

You can download the guide here.

Related team

Richard Bloomfield

Richard Bloomfield

  • Director
  • Restructuring Advisory
  • Norwich