IoD: Inflation continues to squeeze consumers and businesses

Responding to official inflation figures today, showing Consumer Price Index unchanged at 2.6% from June to July 2017, Tej Parikh, Senior Economist at the Institute of Directors, said:

“July’s inflation rate is unchanged, showing the economy still faces a squeeze from the high cost of living. With the weakness in sterling, UK importers continue to face higher input costs, which are filtering through to consumer prices. The higher costs of clothing, food and energy have, however, been countered by reduced motoring costs on the back of lower global oil prices.

“Although the Bank of England expects inflation to peak at 3% later this year, the squeeze on household incomes only compounds the weakening economic outlook for businesses this year. Subdued wage growth is likely to weigh down consumer demand, while an uncertain investment environment—owing to a lack of clarity surrounding the UK’s future relationship with the European Union—continues.

“The Bank is using many of the tools at its disposal to provide as much economic certainty as possible, but it cannot provide political certainty. This must come from the Government as it returns from its summer recess. Ministers must not only provide further details for their desired Brexit process, but also focus on much needed fiscal policy to incentivise investment. The upcoming Budget ought to be used to provide targeted tax reliefs to businesses facing economic pressures. For example, further business rates reliefs should be announced for small- and medium-sized businesses and the Annual Investment Allowance (AIA) could be, at the very least, reinstated to its former, more generous £500,000 cap.”

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