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Peer2Peer Finance News | September 23, 2019

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Inflation holds steady but SMEs will still feel the squeeze

Inflation holds steady but SMEs will still feel the squeeze
Kathryn Gaw

SMALL businesses should not get complacent after new figures showed that inflation held steady last month, industry bodies and lenders have warned.

The Consumer Price Index (CPI) came in at 2.6 per cent in July, just as it was in June. This is far above the Bank of England’s two per cent target.

While some economists have warned that inflation could rise as high as four per cent by the end of the year, HM Treasury has stated that it expects inflation to start falling “next year”.

In the meantime, small- and medium-sized enterprises (SMEs) could bear the brunt of rising costs in an already-difficult funding environment.

“Despite inflation holding steady, SMEs are still going to feel the pinch, so it is vital they understand their cashflow forecasting and are making the most of intelligent, alternative funding option,” said
Greg Carter, the founder and chief executive of peer-to-peer business lender Growth Street.

“Small businesses should remain aware of their cashflow needs and be braced for the impact of inflation on their finances in the long run. This is especially important for those not accessing the most efficient forms of business finance.”

Read more: How rising inflation will impact small businesses

The Federation of Small Businesses (FSB) has criticized the government for failing to support small businesses during times of increased inflationary pressure. The trade body’s national chairman Mike Cherry warned Chancellor Philip Hammond that the UK’s small businesses are already struggling with the business rates revaluation and April’s Living Wage increase.

“Operating costs for small firms are now at their highest in four years,” said Cherry. “Increasing inflationary pressure has coincided with a bruising business rates revaluation and rising employment costs. Our entrepreneurs are paying themselves less and further increasing prices in an attempt to handle the strain. Four in 10 small firms raised prices in response to April’s National Living Wage increase.

“The Chancellor needs to give very careful consideration to the upcoming Budget. With small firms feeling the squeeze, any increase in insurance premium tax, fuel duty or other stealth taxes will be bad for investment and job creation. We need to see all tax reliefs maintained, not least entrepreneurs’ relief, which represents an important incentive for our business owners.”

The government has claimed that the wage increase was part of its efforts to ease the impact of inflation on UK households.

“Although inflation is likely to start falling next year, we understand some families are concerned today about the cost of living,” said a HM Treasury Spokesperson. “That is why we have given the lowest paid a pay rise through the National Living Wage and are cutting taxes for 31 million people.”

Read more: Savers hit by “toxic combination” of low rates and rising inflation