Lincolnshire

Beware rising business costs, warns Streets Chartered Accountants

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Businesses across Greater Lincolnshire need to consider the impact of rising factory gate prices despite an unexpected fall in inflation last month, claims a Lincoln accountancy firm.

British inflation slipped unexpectedly last month but factory gate prices shot up at the fastest pace in years after sterling’s Brexit slump, spelling higher prices for consumers in the year ahead.

Consumer prices rose 0.9% compared with a year ago, the Office for National Statistics said on November 15, below economists’ expectation for a 1.1% annual rise.

But prices for goods leaving factories rose by 2.1%, faster than expected and the biggest increase since April 2012.

Costs faced by producers for raw material and oil showed a record monthly jump in October, leaping by 4.6%.

James Pinchbeck, Marketing Partner for Lincoln-based Streets Chartered Accountants said: “With a weakening of the pound it would not be unrealistic to see increases in prices, not least for those businesses who import raw materials, finished goods or utilities.

“To some extent, we consumers have been insulated from the impact of price hikes with businesses either using up stock and only now re-stocking or through their decision to absorb price increases with a short term loss of margin.

“Certainly Lincolnshire businesses will need to consider the impact of rising costs and how they are going to manage them.

“Those reliant on inputs that are affected by a weakening of the pound, may seek to introduce or drip into the market price increases in the short term, with a long term view of looking at productivity and business practices to manage price hikes.”

James Pinchbeck, Marketing Partner at Streets Chartered Accountants

James Pinchbeck, Marketing Partner at Streets Chartered Accountants

Earlier this month the Bank of England (BoE) forecast that inflation would rise to about 2.7% around this time next year, as sterling’s big fall after the vote to leave the EU pushes up the cost of imports.

The pound’s fall, down 16% against U.S. currency and about 11% against the euro, has left suppliers and retailers battling for profits as imported goods become more expensive.

British inflation has been below the Bank of England’s 2% target for nearly three years and last year it was zero, the lowest since comparable records began in 1950.

BoE Governor Mark Carney has said the central bank could tolerate some overshoot against its inflation target, to help accommodate economic growth and employment.

But earlier this month it kept interest rates on hold, despite having signalled a cut only months earlier.

An ONS measure of core consumer price inflation, which strips out changes in the price of energy, food, alcohol and tobacco, slipped back to 1.2% in October from 1.5%. Economists had expected a smaller fall to 1.4%.