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  • Writer's pictureRuori McMahon

What does inflation mean for your business?

The headline inflation figure in the United Kingdom rose up to 9 per cent in the 12 months leading up to April 22. This is the sharpest rise in inflation we've seen since 1982.

These are the figures released by the Office for National Statistics (ONS), the Government Department responsible for producing official statistics for the British Isles and the UK's own recognised statistical institute.

The ONS uses the consumer prices index to analyse inflation on everyday items, and there has been much talk in the media recently on the effects of inflation on the consumer. To acknowledge this, the chancellor has announced a £15bn cost of living package. It's welcome news to many people across the UK, but business owners are still at risk of going out of operation unless measures are put in place for employers, putting lots of people at risk of losing their jobs.

It's no secret that small businesses have had it rough over the past few years, and the government response has varied greatly depending on what type of business you run. £45bn of taxpayer money has been spent on helping to support businesses to stay afloat.

As these support packages get withdrawn, struggling businesses face losing any progress they've made post-covid, to a soaring inflation metric and the current cost of living crisis. So what is inflation? And what can businesses do to combat its effects?


What is inflation?

In general, Inflation is an expected observation in the economy. It can even help to drive sales as consumers expect prices to rise periodically.

It's calculated by analysing the prices of consumers' general purchases or "basket of goods". This basket of goods is updated regularly to reflect public shopping habits and provide an accurate reading of inflation.

The government expects a degree of inflation, which should be kept at 2 per cent. However, dips or rises in inflation outside the expected variance of 2 per cent can cause shockwaves throughout our economy


Why is inflation rising?

For the most part, it'll come as no surprise that inflation is rising at an unprecedented level at the moment due to two major global influences; the coronavirus virus, and the Ukraine war.

The sudden influx of buyers following the end of the lockdown put a strain on businesses' supply chains when demand for certain goods and services increased suddenly.

As well as this, employment has experienced a huge shift during the pandemic. Many people have changed jobs, and wages have increased. This adds an extra burden on business owners and has affected the price of goods and services.

Sanctions on Russia following the war have also forced countries to source oil and gas from elsewhere, again, affecting supply chains and driving up prices. This is been the single highest contributor to rising inflation in April 2022, directly relating to the rising price of transport and energy bills.


What can you do to mitigate inflation?

As we can see, the cost of living crisis isn't just bad news for consumers or the employee, but can also have detrimental effects on business ownership as well. The Federation of Small Businesses has warned that almost half a million firms are at risk of going bust in light of a fresh economic crisis if further support is not given by the government.

Given the support the £45bn that has been spent on business support through the pandemic, it would be a catastrophe for all of that taxpayer money to have been spent for nothing. In light of a fresh economic crisis, many businesses need further support in order to stay afloat.

Such support has not been announced, so in the meantime, the responsibility falls on the business owner to ensure overheads are as low as possible. Creating a new business forecast model can help you to better project your cost and profit margins, while taking a fresh look at stock and service suppliers may help to cut down costs.

Business rate reductions can yield significant rebates, especially at the end of the rating period like we're in now. If you have yet to explore this avenue, it is well worth looking into before March 2023, after which any entitlement to savings will be lost.

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