There are numerous macroeconomic factors that can impact businesses, many of which will have been exacerbated throughout and in the wake of the coronavirus pandemic.
One such factor is inflation, which is defined as the decline of a currency’s purchasing power over an extended period of time. Numerous things can cause inflation to rise, particularly quantitative easing measures such as the printing and investment of new public money and the decision to slash base interest rates.
But why is inflation in the UK, and what steps can your business take to hedge against the risk of inflation?
Inflation in the UK in 2022
According to recent data released by the Office for National Statistics (ONS), the interest due on government debt hit a staggering £8.1 billion this month, with this up £2.7 billion year-on-year.
This is thanks to heavily increased borrowing throughout the Covid-19 pandemic and associated lockdowns, which has also sent inflation values and the wider cost of living soaring in the UK.
Energy prices have increased exponentially of late, of course, while inflation has spiralled to a 30-year high and peaked at a staggering 7.5% at the beginning of 2022.
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Ultimately, public debt interest repayments are directly linked to the Retail Prices Index of inflation, so the news that inflation had reached its highest peak since March 1991 was incredibly concerning for the government.
It’s also bad news for households and businesses, the latter of which will surely see commodity prices soar in the near-term while service prices also increase and capital values begin to waver.
3 Ways to Protect Your Business Against Inflation
Ultimately, inflation is going to remain disproportionately high for the foreseeable future at least, meaning that businesses will have to take proactive action to safeguard themselves.
Below, we’ve outlined three steps to help you on your way, as you look to minimise your exposure to inflation and survive in a challenging economic climate.
- #1. Consult With Risk Advisors and Business Experts: Let’s start with the basics, as the threat posed by rising inflation will depend on the scope of your business, its model and market of choice. So, we’d recommend liaising with a risk advisory consultant before taking any practical action, as this type of firm can help to guide both domestic and international firms and explain precisely how a sustained rise in inflation will impact your business in the short, medium and longer-term.
- #2. Pay Attention to Productivity and Operational Costs: Ultimately, an excellent way of combating inflation is to reduce business costs, as you look to account for the reduced purchasing power of your national currency without compromising the efficiency of your venture. To achieve this, consider automating non-strategic tasks such as invoicing, accounting and marketing, as this can help to simultaneously save your commercial capital and drive greater levels of productivity.
- #3. Be Realistic When Managing Debt: Many businesses are facing mounting debts in the wake of the pandemic, especially those who have taken advantage of government-backed loans and stimulus measures. However, these must be repaid, so we’d recommend using any residual funds to pay down high-interest debt as a matter of urgency if you can. This type of proactive approach will help you to minimise the value of repayments and the interest charged by creditors over time.