Soaring inflation 'a worrying factor' for entrepreneurs
The rate of inflation is likely to jump sharply, posing greater problems for the UK than economists have thought, a leading commentator has warned.
Martin Vander Weyer told business leaders at an Executive Insight event that he believes the rate could go higher than five per cent.
“I think we are in for a bout of serious inflation and we don’t know how high it is going to be. I think it’s turning into a much bigger problem than British economists feel,” he added.
Martin, business editor of The Spectator and an author, was the guest speaker at the lunch, which was held at the Old Trafford home of Lancashire County Cricket Club – the first in-person event for Executive Insight since the onset of the pandemic.
In his address, Martin provided an update on his popular ‘Outlook for the Entrepreneur’ talk on Zoom to Executive Insight members in January.
He said January, when the streets and city centres were empty, felt like a different world.
The UK economy recovered strongly in the second quarter as the vaccination programme unfolded but Martin said output was still below pre-pandemic levels.
Britain’s economy is predicted to grow by five per cent this year but the International Monetary Fund forecasts slower growth in the middle of the decade.
Martin, whose latest address was entitled ‘Beyond COVID – Outlook for the Entrepreneur’, said rising inflation was just one of several worrying factors for businesses and entrepreneurs.
“I think we are in for a bout of serious inflation and we don’t know how high it is going to be. I think it’s turning into a much bigger problem than British economists feel.”
“Inflation has jumped and I think it is going a lot higher than four or five per cent,” he said.
He said the shipping industry’ woes were a major reason for the surge. The resurgence in demand for consumer and industrial goods has coincided with a shortage of shipping containers, and they are in the wrong locations.
This has meant a rise in shipping costs and therefore an increase in manufacturing and delivery costs, said Martin.
Shortages of key items such as microchips, timber and plastic are also a factor, along with the UK’s labour shortage which has largely resulted from Brexit. A million foreign workers have left the country over the past 18 months.
This has meant pressure on wages. The rise in pay levels is a ‘fierce factor’ in driving inflation, said Martin.
“You cannot have higher wages without inflation.”
High inflation causes issues for business, personal wealth and social stability, he warned.
He added that inflation was not a good thing unless the economy improves its performance to match, but questioned how productivity can grow amid a labour shortage.
Other inflationary factors include chaos in the energy market, with a depletion of the country’s gas stocks, nuclear plants out of action for repairs and other events affecting prices.
Martin said that, while the UK’s economic recovery is well under way, it remains a mixed picture and there are ‘some frightening aspects to it’.
Striking a more positive note, Martin said there were a number of sectors which are set to prosper.
These include healthcare – especially areas which reduce pressure on the NHS, such as testing and online services – along with urban renewal, electric vehicles and infrastructure to support them, logistics and fulfilment, green technology and clean technology (as climate change tops the business agenda once again), and artisan food and drink, as shopping and eating locally gathers momentum.
It is a good time for businesses to expand, as it is easier to raise capital, and they have cash to invest.
Business leaders in the audience stressed that volatility brings opportunities and pointed out that the SME market is resilient and can adapt quickly so it continues to thrive.