Increasing input costs lead to inevitable price hikes by businesses
Written by Mr. Kunal Sawhney, CEO, Kalkine Media
Rising inflationary pressure has become a worldwide phenomenon lately, and the UK economy has been suffering from the evils of inflation too. A 2% inflation target was set by the Bank of England (BoE) with an aim to maintain stability in the economy. However, this 2% target has been breached recently, with the Consumer Prices Index (CPI) going up by 5.1% in the 12 months to November 2021. After the inflation level of 5.2% recorded in September 2011, the highest recorded CPI 12-month figure, the BoE is estimating the inflation levels to reach approximately 6% by the spring of 2022.
Both households and businesses have taken the brunt of the pandemic, and even though the Government has stepped up and offered the necessary financial support, coping up with the financial squeeze has been difficult during these rough times. UK households have been dealing with higher food and utility bills, with many of the poorer ones falling into the trap of fuel poverty ahead of this winter.
To counter the impact of rising inflation and soaring prices, the BoE has recently increased the interest rates from 0.1% to 0.25%. The move to raise the interest rate was made for the first time in three years in response to the rapidly rising prices. In 2022, the rates are projected to rise further, with a 0.25% hike expected as early as February. When the inflation levels went up to 5% in 2011, the interest rates were maintained at historic lows, which proves that the BoE is in a weaker position at present. This may be true as the UK economy has been facing turbulence due to a combination of Brexit-related issues and Covid-related restrictions.
Price hike to impact all
The budget of the households has been impacted, the energy prices have been skyrocketing lately due to excessive demand for oil and gas across the globe, which has pushed up the energy prices. Supply chain issues have been further aggravating the problem of inflation, and with a shortage of labour, materials, and haulage services, the prices of goods have soared immensely. Amid all these issues, the Government’s withdrawal of various support measures from hard-hit businesses, like ending hospitality’s reduced VAT, has resulted in a greater rise in prices by businesses to cover their losses. The pandemic and Brexit have together made the recruitment of lorry drivers and hospitality staff quite difficult.
As the living standard of Britons is plummeting due to increasing inflationary pressure, the wage demand is likely to rise and potentially result in a wage/price spiral, which could have a detrimental impact on the economy. The current inflation level, which is already way above the target rate of BoE, has been making Britons more and more pessimistic about the UK possibly moving towards economic stagnation.
The increase in prices of goods is inevitable with the increasing cost of inputs and transportation, and this phenomenon will be witnessed across markets in 2022. With the new Omicron variant of coronavirus causing massive disruptions in the UK economy, it’s hard to predict what’s in store for the UK economy this year, but the rise in prices is certain in the current circumstances and common people, as well as business, will have to look for means to reduce its impact as much as possible.
