The UK’s inflation rate remained at 3.8% for the second consecutive month, keeping costs at a similar level.
While stability may sound reassuring, inflation is still well above the Bank of England’s 2% target. This means businesses continue to operate in a high-cost environment and with interest rates fixed at 4%, the pressure isn’t easing just yet.
What does this mean for businesses
- Costs remain steady: Day-to-day running expenses aren’t likely to rise sharply in the short term.
- Growth is limited: Flat inflation signals a stagnant economy, meaning revenue and profit growth are harder to achieve.
- Customers are cautious: With household spending power under strain, businesses may struggle to attract new demand
Is steady inflation good or bad?
Gauging whether inflation staying at the same rate is good or bad depends on what side of the coin you are looking at.
Excluding the continued rise in food prices, general costs for businesses have and will remain at the same level. Steady costs no more or less is spent each month on running your business.
While costs staying steady is a good thing, the lack of movement highlights the lack of economic growth. When inflation remains at the same level, it suggests the economy isn’t growing and has stagnated.
The UK’s economy isn’t in a great place after figures released showed there was zero growth in July, which emphasises how difficult a job the Chancellor Rachel Reeves has in trying to get the economy moving forward.
With the economy in a stagnant state, businesses are not getting enough customers to be able to increase their overall profits as they are more reserved about spending their money in the current climate.
How will the latest inflation figures affect interest rates?
In August, the Bank of England decided to cut interest rates to 4%, a decision made through gritted teeth after a second round of voting.
The cut was made despite inflation rising to the current 3.8 per cent figure in July.
Because inflation has stayed at 3.8%, the Bank of England has confirmed interest rates will stay at 4%.
With inflation and interest rates staying the same, businesses won’t see any major changes in their income or expenditures as costs will stay at a similar level.
However, because of the current economic climate, they are likely to see very little positive change in their revenue and profit numbers.
Why planning ahead matters
With inflation and interest rates still considerably high, you can put measures in place to ensure your business is prepared for every eventuality, whether costs increase or decrease.
Practical steps to take now:
- Review operational and financing costs.
- Stress-test cash flow under different inflation and interest rate scenarios.
- Identify opportunities to build resilience and improve efficiency.
Take control of your business finances, book a consultation with our expert advisors today to stress-test your financial strategy and ensure your business is ready for whatever comes next.