The UK’s inflation rate remained at 3.8 per cent for a second consecutive month, meaning costs have stayed at a similar level.
However, while inflation has remained unmoved, it is still above the Bank of England’s two per cent target.
The Bank of England also needs to drive down interest rates to help both taxpayers and businesses and following the news about inflation rates, they have decided to keep interest rates at four per cent.
For businesses, their ongoing running costs won’t change too much, if at all, but it also points to revenue and profits stagnating as unchanged inflation usually signals a slow economy.
Is inflation staying the same good or bad?
Gauging whether inflation staying at the same rate is good or bad depends on what side of the coin you are looking at.
Excluding the continued rise in food prices, general costs for businesses have and will remain at the same level. Steady costs no more or less is spent each month on running your business.
While costs staying steady is a good thing, the lack of movement highlights the lack of economic growth. When inflation remains at the same level, it suggests the economy isn’t growing and has stagnated.
The UK’s economy isn’t in a great place after figures released showed there was zero growth in July, which emphasises how difficult a job the Chancellor Rachel Reeves has in trying to get the economy moving forward.
With the economy in a stagnant state, businesses are not getting enough customers to be able to increase their overall profits as they are more reserved about spending their money in the current climate.
How will the latest inflation figures affect interest rates?
In August, the Bank of England decided to cut interest rates to four per cent, a decision made through gritted teeth after a second round of voting.
The cut was made despite inflation rising to the current 3.8 per cent figure in July.
Because inflation has stayed at 3.8 per cent, the Bank of England has confirmed interest rates will stay at four per cent.
With inflation and interest rates staying the same, businesses won’t see any major changes in their income or expenditures as costs will stay at a similar level.
However, because of the current economic climate, they are likely to see very little positive change in their revenue and profit numbers.
The importance of planning for any changes to inflation and interest rates
With inflation and interest rates still considerably high, you can put measures in place to ensure your business is prepared for every eventuality, whether costs increase or decrease.
You can prepare for any changes by understanding your company’s finances. Analyse all costs from expenditures to operation costs, to revenue and profits. You can spot opportunities and prepare effectively for any changes.
Prepare for all changes, get in touch with our expert team of financial advisors.
