Inflation fall not enough to calm fears on interest rates, say small firms

Responding to the news that CPI stood at 6.8% in the year to July 2023, down from 7.9% in June, Martin McTague, National Chair of the Federation of Small Businesses said: “While a drop in inflation provides some comfort, today’s figures show less of a drop in inflation than hoped for, and will renew fears of a wage-price spiral, and of yet more base rate hikes in future.

“The worry now is that rising wages ignite a fresh wave of inflation in September, which will threaten the momentum from June’s GDP growth. The cost of doing business crisis still has a grip on the small business community, as prices for many key inputs, from energy to components and raw materials, remain far above where they were a year ago.

“Any reduction in inflation is good news, but the huge toll that spiralling prices have inflicted is still being keenly felt by small firms.

“Despite the inflationary pressures that we’ve seen for more than a year, more small businesses have seen their revenues shrink over each of the last five quarters than have seen them increase, according to our research.

“Small business confidence levels fell back in the second quarter, with stickier-than-expected inflation alongside interest rate increases playing a major part in that. We very much hope that these inflation figures continue on a downward trend in Q3, to give confidence among small firms a chance to recover.

“Yesterday’s record wage increase figures will however make the path back to lower inflation and lower interest rates more complicated, while the news that GDP rose by 0.5% in June makes the job of maintaining recovery while bearing down on inflation a tricky one.

“With low interest rate deals on loans and finance options near-impossible to find, small firms looking to grow will be keeping their fingers crossed that the end of base rate rises is in sight.

“We’re calling on the Government to use the rest of the summer to plan a growth agenda for small firms, and tackling late payment should be top of the list. Having to chase overdue payments is a huge drain on small firms’ resources, increasing their cost of doing business and making them more likely to have to apply for finance to manage their cashflow.”