UK inflation: pause for thought
Monday October 23, 2023
A surprise CPI reading highlights just how challenging the operating landscape remains
The latest consumer price index (CPI) – which provides a general measure on inflation – defied gravity, hopes and expectations when it was published last week (18th October), remaining steady at 6.7%.
The data highlights just how dynamic and uncertain operating conditions remain for businesses. And it underlines why, despite very good reasons for optimism, boardrooms still have ‘caution’ as their by-word.
UK firms continue to face significant pressures in the cost of doing business, despite input costs easing from record highs in in recent months. The latest Lloyds Bank UK Sector Tracker, which uses PMI data to reveal trends in major UK sectors, reported that nine of the 14 sectors it monitors reported rising input costs last month.
At the same time, businesses are facing sluggish and fragile demand.
This is something that will be affecting revenues and may force businesses to be even more competitive on pricing in order to compete.
In such an environment, success will come down to having the right insight, funding facilities and working capital headroom to be agile and responsive. Without this, businesses risk either being left behind or damaging their own long-term resilience by going too far, too fast. It’s a fine line to walk, but a process that will be made all the easier with the right support and preparation.
The road ahead
Looking ahead, there are looming milestones that will respectively have a bearing on economic performance, and influence how management teams are positioning their operations in this environment.
One such milestone is the next interest rate decision, due on the 2nd of November.
There was relief amongst management teams at the Bank of England’s decision to hold interest rates steady last month. It meant some respite from what had, until then, been a long unbroken chain of interest rate rises – hikes that have made the cost of capital and the cost of servicing existing debt increasingly expensive.
But, as my Restructuring Advisory colleague Allan Kelly recently pointed out, this was by no means a unanimous decision by the Bank’s monetary policy committee (MPC).
The fact that inflation has – unexpectedly – flatlined, rather than continuing its downwards trend, will add to debate within the MPC’s ranks, and will be something rate setters will need to carefully consider. For management teams, this introduces new uncertainty over the direction of debt and capital costs, at least in the immediate term.
Another key calendar moment will be the Chancellor’s Autumn Statement on the 22nd of November. This has traditionally been a set-piece opportunity for the government to unveil new or enhanced support measures for businesses, or changes to investment or tax policy.
Leaders across sectors will still be eagerly anticipating the speech. Anything that alleviates cost burden, boosts resilience and unlocks competitive advantage will be welcomed.
Already we’re seeing calls from quarters of the retail sector for action on business rates and from hospitality on VAT reduction. But perhaps in such a fast-changing environment, the one thing that will be most valued will be anything that contributes to greater clarity; anything that helps businesses plan ahead and invest with more confidence.
As the CPI reading shows, certainty is a commodity in short supply. FRP Question Time
UK firms continue to face significant pressures in the cost of doing business, despite some input costs easing from record highs in recent months.Phil Harris Restructuring Advisory