UK inflation rate rises to its highest level in 20 months

Prices are up and manufacturing is down but this may just be the tip of the iceberg for small businesses

UK inflation rate rises to its highest level in 20 months

The results are in from the first significant health check on the UK economy since Brexit and we now know that inflation rates in the UK have increased to their highest levels since November 2014, according to official figures from The Office for National Statistics (ONS).

A combination of falling global oil prices and intense supermarket competition has meant that UK consumers have enjoyed relatively low and stable prices this year. But with the fall in the value of the pound since the EU referendum, the consumer price index – which is the official measure of inflation that shows price movements for an average basket of goods and services each month – rose to 0.6% compared to 0.5% in June. Transport, alcohol, tobacco and food prices were largely responsible for the rise in inflation in July and there’s concern that UK rail fares are going to jump by 1.9% next year, squeezing household budgets even further.

A separate report from the ONS suggested that the fall in the pound’s value may have led to a sharp rise in import costs for manufacturers. According to estimates in the Producer Price Index, UK manufacturers experienced higher costs in the year to July following two years of falls. Adding to the gloom, manufacturing activity shrank at the fastest pace for over three years. This prompted Sir Keith Burnett, vice-chancellor of the University of Sheffield, to write in The Guardian that he thinks “we need something that helps us make things to sell abroad and make some more productive jobs in the north.”

Although the ONS says consumers are unlikely to be feeling the effects of higher manufacturing costs just yet, they have been affected by higher costs elsewhere – and some economists believe the full extent of the economic impact on consumption is yet to be determined.

While much has been made of the resilience of the UK’s small business community, there’s no denying that difficult decisions about pricing, recruitment and funding lie ahead.

Maria Barr
Maria Barr

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