JVCA

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Everything you need to know to stop your business from running you.

inflation is creeping up

Inflation is a thing!

What is the UK’s inflation rate?  The Bank of England has a target of keeping UK inflation at or below 2% and July’s inflation rate was 2% = good, but August’s inflation rate has crept up to 3.2% = bad!

  • Used car prices are up 3½% year on year and have gone up every month this year.
  • Petrol prices have gone up by about 19% in the last year and are their highest since about 2013 – and the price of oil and therefore petrol and diesel is a big factor in working out inflation.
  • House price inflation was 13.2% last month and has reduced to around 8% this month – which is probably a reflection of the Stamp Duty holiday ending!
  • Food and drink prices have gone up (in part a reflection of last year’s low prices from the Help Out to Eat Out scheme)
  • Gas and electricity prices are due to go up in October (and already went up in April!)

What does this mean for your business?

Anybody under the age of about 40 probably doesn’t remember the last time we had high inflation rates in the UK.  We are unlikely to go back to the inflation and mortgage interest rates of 18% or so that we saw in the early 1990s – but inflation is a problem and what can you do about it?

  • The first thing to do is to make sure you are comfortably profitable. So review your pricing and check the margin on each customer or product.
  • Put your prices up where possible, and do that quickly.  Don’t wait to be squeezed, get ahead of the curve.
  • Wage rates are likely to need to go up, so prepare forecasts and business plans on the assumption that all of your costs go up!   Offer a small wage rise first not only to keep hold of your employees but to pre-empt a request for a bigger wage rise later.
  • Look at your cash balances and credit control – more money in your bank helps keep you safe.
  • If you are planning on investing in equipment or stock, consider bringing that forward before your suppliers increase their prices.
  • If you can, go back to your main suppliers and agree better prices now … and maybe fix them before they increase them.
  • Review your borrowing and look at fixed rate rather than variable rate borrowing.

Is it going to get worse or better over the next few months?

Nobody has a crystal ball and there are divergent views amongst all the commentators.  My view is it will get worse before it gets better. The UK is not alone – inflation in the US and Germany is up as well.  But that just means it’s a global problem not just a UK one … so hold on as we aren’t in control – and this means we may be in for an economic upset.

Watch for an interest rate announcement from the Bank of England and an oil price or oil production announcement from the OPEC countries …and be prepared to react to change! If you are looking for help in doing the reviewing of prices, margins, cash collection processes, reviewing borrowing, etc, etc. Then get in touch and let us help you.

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