Written by Astriid volunteer Sabeeha Kassam.
This summer, the CBI provided a not-so-bright forecast for the British economy; warning of an imminent recession unless the government does more to invest in business. Their outlook suggests ‘‘a decrease in gross domestic product (GDP) from 3.7% in 2022 and 1.0% in 2023. They previously predicted 5.1% dropping to 3% respectively.’’ The Bank of England defines GDP as the “measure of the size of the economy of a country, usually over three months and is used as a comparator for health during a specific period.’’
The consumer prices index (CPI), according to the office of national statistics, is a tool to measure how well a particular economy is doing. It affects pensions, interest rates, state benefits among many other payments and shows the impact of inflation on household budgets. Think of it like a shopping trolley full of any kind of service and goods a household will purchase. Anything from flights to far-flung sunny destinations, hospital visits, boba tea, cereal, gas and electricity, and cigarettes. Each item is a value weighted for importance and the figure generated fixed for twelve months. Hence CPI inflation is a rate at which the items in the trolly increase or decrease. It does not take into account increased spending but the prices of the items, hence showing how inflation affects the ‘average’ family’s budget. If wages do not rise in line with CPI inflation this can cause a drop in standards of living. The CBI has commented that ‘‘this slowing of growth is mainly due to the CPI inflation figure of 9% which is a forty-year high; alongside decreased consumer spending, the war in Ukraine and supply chain pressures. And will likely worsen in October at the increase of the Ofgem price cap.’’
What can be done to beat the rising costs of doing business, with this persisting backdrop of increased inflation, COVID-19, Brexit, skills and labour shortages, rising wages and energy costs? The CBI have recommended changes in four key areas:
- UK Policy
A previous article on our Astriid website on the topic of retaining talent covers the CBI recommendations for businesses to manage rising costs within their talent pool.
Alongside this advice the CBI recommend what employers can do to support their talent:
Ways of working
Hybrid working/ flexible hours.
Seasonal rail tickets/ cycle to work schemes.
- Payroll flexibility so talent can access part of their pay for urgent bills.
- Salaries: Inflationary pay rises, offsetting national insurance increases and upskilling staff.
- Support funds: invest in talent and customers to support them in unforeseen circumstances.
Some companies still contribute to pensions even if talent decide to pause their contributions.
- Mental health: Counselling services for talent and customers, support and information.
- Financial: Budgeting advice and other skills sessions.
- Physical health: Money off gym memberships.
The CBI forecast that the current volatility in the energy market is unlikely to resolve once the conflict in Ukraine is over, despite that having aggravated the situation.
- LED lighting.
- Proper insulation.
- Renewable energy generation on-site with energy storage units, so energy can be stored and released when necessary.
Long-term supply chain issues and rising energy prices are affecting economic growth and recovery across businesses in the UK.
- Diversifying supply chains in response to disruptions.
- Broadening small numbers of selected suppliers and considering new avenues.
- Considering purchasing materials still in research and development.
- On-shore/ near-shore operations to ensure more robust supply chains.
- Creating a new supply chain manager role to manage and respond to disruptions.
COVID-19 lockdowns are still causing disruptions in China due to their zero-COVID policy. The CBI state that this is a stark reminder that the global business environment could remain unpredictable for some time to come.
The bank of England is also predicting that inflation will rise to slightly over 10% in 2022 Q4, the last quarter of the financial year, which will have wide-reaching effects both on businesses and low-income families disproportionately. This is the highest figure since 1982 and the CBI predicts will result in one of the sharpest squeezes on household budgets since records began.
In conclusion, the CBI is doing all it can to help businesses navigate their way through the forecasted difficult times ahead. They have highlighted four key areas to work on and give real tips other businesses have implemented. Businesses have faced many challenges over the past two years and their next challenge is to face rising energy, inflation and salary costs on top. This crisis will not resolve itself, however, so businesses are encouraged to make the most of tips and advice to navigate rising costs and keep ahead of the competition.
Written by Astrid volunteer Sabeeha Kassam.