UK inflation rate rises to 1.6%

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The consumer prices index measure of inflation rate rose to 1.6% in the year to December 2016, according to the Office for National Statistics (ONS).

The rate was up from a 1.2% rise in the year to November 2016.

The ONS listed rises in food prices, air fares and falls in motor fuels as the main contributors to the increased rate between November and December.

The announcement prompted a range of reaction from industry and professional bodies.

The Resolution Foundation

Responding to the figures, Conor D’Arcy, policy analyst at the Resolution Foundation, said:

“Today’s sharper than expected rise in inflation shows that the ultra-low price rises that consumers have benefitted from in recent years is well and truly over.”

“That’s still low historically, but a significant rise to which wage growth has so far failed to respond.”

British Chambers of Commerce 

Suren Thiru, head of economics at the British Chambers of Commerce, said:

“A period of materially higher inflation is a significant concern for many businesses as it erodes profit margins and stifles their ability to invest and grow, particularly during this time of heightened uncertainty.”

Rising costs biggest challenge for firms

Over a fifth of small businesses say rising costs will be their biggest challenge in 2017, according to Bibby Financial Services (BFS).

The impact of inflation and fall of the sterling following the EU referendum have led many small businesses to become concerned about price rises in the last year.

Of the businesses surveyed in the Q4 SME Confidence Tracker, the average planned investment over the next 3 months is £49,237, less than half the level (£101,919) invested in Q2 2016.

Other challenges faced by businesses:

  • Increased competition (18%)
  • Late payments (11%).

28% are holding off on investment due to concerns of Brexit and wider EU economy.

24% said they are planning to build up on their cash reserves instead.

David Postings, global chief executive of BFS, said:

“These businesses are facing the challenge of maintaining profitability while remaining price competitive. This equation is causing a headache for many businesses and we are seeing many SMEs start to tighten their belts and pull back investment.”

“While exporters are seeing a boost in overseas sales, this benefit only goes so far, as many businesses do not look overseas for opportunities. The UK is still too reliant on a consumer driven economy that has all the signs of slowing down.”