Super Thursday - what will the announcements mean for your business?
Last Thursday's inflation report from the Bank of England was issued in the immediate aftermath of a dramatic decision by the High Court, which ruled that the decision to invoke Article 50 and leave the EU can only be done so when voted for by Parliament.
Mixed reactions greeted the decision, with many pleased that it may delay ‘Brexit’ proceedings, but others questioned what it means for democracy. The people had spoken (via the referendum), but now it is down to Parliament to execute that will, whether they do so or not is the question at hand. Not only will this lead to prolonged debate, but it will also add to the uncertainty which is already prevalent.
In the shadow of this news, the latest inflation report proved to be somewhat less dramatic, but maybe that’s a good thing!
Back in August, interest rates were cut to 0.25%, an all-time low, and numerous quantitative easing (QE) schemes had been put in place in a bid to support the post-referendum economy.
The story was the same this time too. Interest rates remain at 0.25% and QE is still planned to amount to £435bn. Both decisions were unanimous, with the committee voting 9-0.
Forecasts for growth were revised up for this year and 2017, claiming that GDP will grow by 2.2% in 2016 (up by 0.2%) and 1.4% in 2017, a sharp increase from the 0.8% initially predicted. Inflation forecasts also saw an increase from 2% to 2.7% therefore not only meeting, but exceeding the 2% target.
With the pound surging in value following the High Court Ruling, and forecasts for growth more positive than first predicted, what will the events of ‘Super Thursday’ mean for the immediate future of the UK’s business population?
Brexit delays will result in increased uncertainty
Despite the Bank of England’s report stating that “near-term outlook for activity is stronger that expected three months ago”, it was still highlighted that “investment intentions have continued to soften and the commercial property market has been subdued.” Showing that while consumer confidence and GDP have not suffered as much as first predicted, the future of business in this country is still very uncertain.
The High Court ruling today will not have done much to remedy this uncertainty, throwing into question the ability of Theresa May to invoke Article 50 in March 2017 as previously speculated.
Despite the pound’s value experiencing an uplift, this is not indicative of an improvement in investor confidence long term. We can rest assured that the next few months will be ones of uncertainty, not just economically but also politically, as the democratic will of the people is challenged by, well… democracy.
The decision to keep interest rates at an all-time low demonstrates that the Bank of England are still hoping to stimulate the economy by deterring consumers from saving. By keeping interest rates at 0.25%, it not only encourages spending, but it also puts money into the pockets of consumers as those on variable interest rate mortgages and loans, continue to pay back at a lower rate.
It will also keep the cost of business borrowing low, a god send for businesses, especially those who rely on imports. By encouraging consumer activity and supporting businesses, it is hoped the upward trend of GDP will continue despite the uncertainty that lies ahead.
The impact of Inflation
Despite steady inflation being an indication of a healthy economy, the issue that may now face businesses, as it continues to rise, is the impact it will have on real wages. As prices rise, employees will be calling for wage increases to match the rate of inflation, with some businesses already struggling to make ends meet in the current economic climate, this additional cost could be the final nail in their coffin.
Last August, the Bank of England announced that it was willing to undergo a period of high inflation to reach its growth and employment targets, and it appears this mentality is still dominant.
It was noted in the report that: “given the projected rise in unemployment, together with the risks around activity and inflation, and the potential for further volatility in asset prices, the MPC judges it is appropriate to accommodate a period of above-target inflation. That notwithstanding, the MPC is monitoring closely the evolution of inflation expectations.”
It is a delicate balancing act between ensuring that price levels support growth, and compensate for the depreciation of sterling, without placing additional pressure on those who are already feeling the strain.
The above target inflation levels were blamed on the continued depreciation of sterling following the EU referendum and it is therefore expected that low interest rates will remain, to support growth, as prices continue to rise.
It will therefore continue to be an uncertain time for UK businesses. Speaking to the press after the inflation report was released, Mark Carney maintained that “the biggest determinant of the UK’s medium-term prosperity will be the country’s new relationship with the EU and the reforms that it catalyses.”
In the meantime, it is vital that SMEs save money where possible, to shield themselves from higher prices and the demands for wage increases. It has therefore never been more important for businesses to micro-manage their finances.
This is where Love Energy Savings can help. We have been advising businesses since 2007 on how much they could be saving simply by switching their energy supplier or tariff to a cheaper alternative. Our latest research has shown that SMEs have lost an estimated £2.4bn by failing to switch over the last 5 years, a substantial sum.comments powered by Disqus