UK inflation rate rises to highest level in nearly four years

The UK’s inflation rate as measured by the Consumer Prices Index (CPI) rose to 2.9% in May, up from 2.7% in April, data published by the Office for National Statistics (ONS) has revealed.

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The rising costs of package holidays and imported computer games helped to push the rate to its current level. The ONS found that food and clothing prices also rose, but fuel prices fell.

Economists had previously predicted that the rate of inflation would remain at 2.7% in May.

Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), commented: ‘Higher inflation is a key business concern as it squeezes margins and weakens their ability to invest, particularly during this time of heightened political uncertainty.

‘A key focus of the new government must therefore be on easing the current pressure on firms’ cost base by tackling the burden of upfront costs and taxes associated with doing business in the UK.’

Meanwhile, the Trades Union Congress (TUC) expressed concerns that the UK’s rising inflation rate ‘continues to far outstrip wage growth’.

Frances O’Grady, General Secretary of the TUC, warned: ‘The election showed that working people are struggling. The new government must stop the real wage slide. Ministers must focus on delivering better-paid jobs all around the UK.’

Business groups react to General Election result

With the 2017 General Election resulting in a Hung Parliament, the UK’s leading business groups have been giving their reactions.

The Institute of Directors (IoD) has warned that businesses have now been ‘thrown into political limbo’.

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The Confederation of British Industry (CBI) is urging politicians to form a functioning government which offers security and places the economy at the heart of its agenda.

CBI Director-General Carolyn Fairbairn said:

‘For the next government, the need and opportunity to deliver an open, competitive and fair post-Brexit economy that works for everyone across all our nations and regions has never been more important.’

Meanwhile, the Federation of Small Businesses (FSB) has called for a delay to the beginning of Brexit talks.

FSB National Chairman Mike Cherry said:

‘It is important to go into the Brexit talks from a position of strength, focused on getting the best deal possible for trade and access to workers and skills. Negotiations should be led by a government and a Prime Minister that will be in place for the duration, and so we call for a delay to the scheduled start of negotiations rather than a rush to begin in 11 days’ time. The need for a transition period now becomes even stronger, providing the time to get Brexit right.’

The British Chambers of Commerce (BCC) also emphasised the ongoing uncertainty for business communities, and echoed the FSB‘s call for a delay to Brexit negotiations.

Dr Adam Marshall, BCC Director General, said:

‘Whilst companies have for many months done their best to screen out political noise in order to focus on their own operations, this result will prove much harder for UK businesses to ignore.

‘No business would walk into a negotiation without clear objectives, an agreed starting position, and a strong negotiating team. It is hard to see how Brexit negotiations could begin without answers on these important questions.’

‘Brexit funding gap’ poses threat to small businesses, report warns

In a new report, the Federation of Small Businesses (FSB) has warned that ‘billions of pounds in EU funding’ will need to be replaced following the UK’s departure from the EU if Britain is to avoid creating a ‘business support black hole’ for small firms.

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According to the report, the EU has dedicated £3.6 billion to the development of a competitive business environment for UK small businesses for the funding round set to end in 2020.

The FSB has suggested that, currently, there is ‘no regional development spend budgeted at national level beyond 2021’.

It is calling for the next government to seize the opportunity that Brexit presents to reform the business support landscape for small firms.

Mike Cherry, National Chairman of the FSB, stated: ‘Small businesses across the country are staring into a business support black hole from 2021. This is a particularly pressing issue for the many small firms with growth ambitions and those in less economically developed regions.

‘If the next government is serious about developing an Industrial Strategy that delivers prosperity across all areas of England, it must replace EU funding dedicated to small business support and access to finance after we leave the EU.’

UK workers set to experience fall in real wages, analysis suggests

UK workers are set to experience a fall in real wages in 2017 and 2018, according to an analysis published by the Trades Union Congress (TUC).

The analysis, which is based on forecasts from the Organisation for Economic Co-operation and Development (OECD), found that the UK will be one of just five OECD countries to experience a fall in real wages.

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UK real wages are on course to fall by -0.5% by the end of 2018. The business group found that, in other OECD countries, real wage growth is set to increase by an average of +2.6%.

Real wages for UK workers will be -6.8% lower in 2018 than they were in 2007 before the financial crash, the OECD has predicted.

The TUC is urging the next government to act in order to boost UK real wage growth.

Frances O’Grady, General Secretary of the TUC, commented: ‘British workers have endured the longest pay squeeze since Victorian times.

‘Britain badly needs a pay rise – and all the political parties must explain in their manifestos how they will boost living standards across the UK.’

Small businesses concerned over impact of Brexit on EU workers, FSB suggests

Over half of small businesses employing workers from the EU are concerned that Brexit may hinder their recruitment of skilled staff, a report published by the Federation of Small Businesses (FSB) has suggested.

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59% of businesses surveyed reported that they are worried that they could lose access to individuals with the ‘right skills’, while 54% of firms are concerned about growing their business post-Brexit.

According to the FSB’s report, 21% of small businesses currently employ EU workers. The report also found that small firms with EU workers ‘mainly employ mid-skilled staff’, such as care and construction workers, mechanics and office managers.

The FSB has stated that securing the right to remain in the UK for EU workers ‘must be a priority’.

Mike Cherry, National Chairman of the FSB, said: ‘There is a real concern among small firms with EU staff that they will lose access to the skills and labour their business needs to survive and grow. EU workers are a vital part of our economy, helping to plug chronic skills gaps across a wide range of sectors, and filling jobs in an already tight labour market.’

UK manufacturers report ‘strong growth’ in domestic and export orders

A survey carried out by the Confederation of British Industry (CBI) has revealed that, in the three months to April, UK manufacturers’ domestic orders improved at the ‘fastest pace since July 2014’.

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Meanwhile, export orders recorded the strongest growth in six years, according to the CBI’s latest Industrial Trends Survey. This was conducted before the announcement of a General Election.

However, the CBI also revealed that the weak pound pushed up costs, with manufacturers reporting the strongest rise in unit costs in six years.

Rain Newton-Smith, Chief Economist at the CBI, commented: ‘UK manufacturers are enjoying strong growth in demand from customers in the UK and overseas, and continue to ramp up production.

‘Exports have surged and firms are at their most optimistic about selling overseas in over four decades. Even so, the combination of the weak pound and recovering commodity prices means that cost pressures continue to build, and manufacturers report no sign of them abating over the near-term.’

IMF upgrades UK growth forecast

The International Monetary Fund (IMF) has raised its UK growth forecast for 2017 for the second time in three months.

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Within its half-yearly World Economic Outlook, the IMF predicts that the UK economy will now grow by 2% this year, up from its previous forecast of 1.5%. This makes the UK economy the second fastest growing advanced economy, after the US economy.

The IMF stated that the forecast has been raised in response to the stronger than expected performance of the UK economy since the vote to leave the EU last year.

However, UK economic growth is expected to slow to 1.5% in 2018.

Commenting on the IMF’s decision to raise its growth forecast, Chancellor Philip Hammond said: ‘The fundamentals of our economy are strong and we continue to invest in the skills needed for a stronger and fairer Britain.’ Mr Hammond also stated that Britain will play ‘an active and engaged role in the global economy’.