Inflation now running at 6.2% and forecast to possibly peak as high as 9% this year, depending on what happens with global energy prices, was clearly not the news Sunak would have wanted ahead of his statement to the House yesterday.
Whilst he has taken several steps to ease pressure on household budgets has he done enough to avert a huge decline in domestic economic fortunes?
The consensus view, which we share, is sadly not.
Obviously the increase in NI threshold will help a number of the lowest income families, but it is estimated that anyone earning more than £37,000 p.a. will be worse off as the increased NI charge will exceed the reduction from the move in threshold.
Five pence off a litre of fuel helps, but given that petrol was 145p/litre at the end of last year and yesterday, before the cut was announced, was 167p/litre it really is not going to make much difference.
All areas of consumer spend are being hit by price increases and those that are discretionary will undoubtedly suffer as households prioritise spending on the essentials of energy, fuel & putting food on the table.
Looking at the changes to businesses taxation, Sunak has helped a little by increasing the employment allowance and businesses will benefit from the business rates discount announced in the Autumn budget but, despite this, we think the future looks bleak for many businesses.
All businesses are facing increased employment costs as a result of the hike in employers NI and it is inevitable that there will be demands for pay rises to offset the price inflation. In addition, increased energy costs will severely impact any manufacturing businesses with a high energy requirement, thus putting even greater pressure on margins.
As much as we would like to, it is difficult to be positive when looking at the pressures facing both businesses and consumers in the coming months.
Faced with such cost increases for the basics, households will have to make cutbacks and it is inevitable that businesses in non-essential retail, hospitality & entertainment that are reliant on discretionary spend may find it hard going forward, unless people decide to use their credit card to pay for the occasional treat which will simply cause problems further down the line.
Inevitably, businesses will fail and this will have a knock-on effect on the commercial property market at a time when commercial landlords are about to be able to evict tenants that have been protected by Covid emergency support measures.
If any of our contacts are involved with, or knows of anybody whose business is struggling, we would urge them to act decisively and seek independent professional advice and that is why we are always available for an initial zero cost assessment which can be arranged by contacting Alistair Dickson at SKSi.