Kay Brookes, partner at Bates Weston considers what is driving the high inflation rates in the UK and what can we, as your accountants, do to help?
During the pandemic, prices fell as businesses tried to reduce their stocks because of the uncertainty about the duration and incidence of further lockdowns. As the economy opened up, businesses put their prices up and inflation started to pick up – albeit temporarily.
However, other supply issues prolonged the spike in inflation – rising demand put pressure on supply chains for goods and services, interruptions to economic activity from new variants of COVID led to uncertainty and sector specific supply issues impacted sectors like cars and consumer electronics. Then Russia invaded Ukraine, increasing the prices of precious metals, fertilisers and foods and further impacting energy prices.
How can we help you to mitigate the impact of inflationary pressures and protect margins?
By bringing both revenues and expenses sharply into focus.
Influencing revenues largely comes down to an effective pricing strategy. Careful projections balancing the price consumers will bear against the need to increase revenues to protect margins is required. When looking at cost control, extending contracts, finding alternative suppliers or finding ways of adding value are options. In addition putting the spotlight on spending helps to focus the mind on curbing and controlling costs and we can help with that.
Although we all see the headlines affecting the economy as a whole, it is important to understand the impact of inflationary pressures on the profitability of your own business. It is also important to acknowledge that while nothing is certain, it is better to try to face the possibility of problems ahead, putting plans in place to tackle them.
Commentators are broadly expecting the Consumer Prices Index CPI to average 9% this year followed by 6-7% next year. The CPI is produced by the Office for National Statistics and its percentage change over prices a year ago is the rate of inflation.
Businesses have weathered Brexit and the pandemic and now face the challenge of high inflation, at least in the short term. Let us help you to plan for this, hopefully temporary position.
