By Denis Sheehan MIH: Cost of doing business fuels inflation, the chancellor’s missed VAT opportunity.
The Office for National Statistics today reports UK inflation rose to 10.4% in the year to February up from 10.1% in January. The report showed annual inflation for restaurants and hotels was 12.1% in February 2023, up from 10.8% in January, the highest since July 1991.
Hospitality businesses are of course passing on hugely inflated costs of doing business. With energy companies hiking prices by multiples rather than percentages in all too many instances, and government reducing energy support in April, prices for hospitality output can only continue to rise.
Food and non-alcoholic drink inflation jumped to 18.2% in the year to February 2023, up from 16.8% in January, the largest increase was from vegetables. The increase was driven by shortages of salad and vegetables, coupled with the impact of higher electricity prices to produce both grown out of season in UK greenhouses.
In his budget last week, the chancellor did nothing meaningful to allay costs for hospitality and catering businesses, which could have seen savings passed to consumers slowing inflation. The most obvious and easy being a reduction in VAT, a move that would have been greatly appreciated by businesses and consumers alike. He seems to have missed an opportunity to temper frustrations with both and incentivise an increase in demand and productivity.
Economists had forecast a drop to 9.9% with government hoping a downward pattern would emerge from that in line with the chancellor’s budget predictions last week.
Unfortunately, this leaves inflation sharply higher than the Bank of England’s targets, giving policymakers some unexpected further turbulence to factor into their equations before setting UK interest rates tomorrow.
