December 2021: The Bank of England is likely to predict that inflation, a measure of the rate of rising prices of goods and services in the economy will peak in December 2021 at 4.5 per cent and reduce to around 2 per cent by December 2022. Ahead of the Monetary Policy Committee’s meeting on December 16th, Ross Boyd, Director at Belfast-based accounting consultancy, RB+, suggests that this forecast may be optimistic for a number of reasons including the ongoing pandemic, automation, Brexit, rising taxes and utility bills.
Ross believes that inflation could remain high, which could potentially have a significant impact on Northern Ireland’s 120,000 owner managed businesses. Ross advises, “Covid 19 remains a massive factor. Whilst we have hopefully overcome the worst of the restrictions, our base of owner managed businesses is concerned that the Bank of England’s prediction of inflation gradually decreasing to 2 per cent by December 2022 may be optimistic.
“We continue to advise all of our clients to remain cautious as Covid 19 may continue to disrupt businesses for some time. Among other complications, ongoing or new restrictions can create global supply chain issues resulting in price fluctuations. You only need to look at supermarket shelves to see the impact. It will likely take years for us to adjust to these new conditions and regain equilibrium.”
Ross also notes that the current Brexit arrangements and associated uncertainties continue to impact the economy – ultimately driving up prices, particularly in Northern Ireland, despite its special status. Ross comments, “Brexit clearly isn’t done and it’s likely these issues will take significant time to resolve”.
Business owners in Northern Ireland must also continue to prepare themselves for an ongoing rise in taxes of anything up to 8 per cent between 2015 to 2025. Ross advises, “Our clients will have to absorb a number of tax increases depending on their sector, for example, those in hospitality will have a 7.5 per cent VAT increase to contend with after 1 April 2022. The rate of Employer National Insurance contributions will also go up 1.25 per cent on 6 April 2022, whilst Corporation Tax will increase for all business earning over £50,000, up to a maximum of 25 per cent once profits exceed £250,000. Minimum wage increases are also on the horizon – so overall, businesses are likely to see a bottom-line decline unless they drive up prices to accommodate the cost base.”
The rise in automation, ongoing restrictions, homeworking, and longstanding demographic trends are all contributing to a paradigm shift in the labour market. Ross asserts that Northern Ireland’s owner managed businesses are already facing real challenges with recruitment, as the balance of power shifts to the employee who can demand a higher wage, which again, may further drive inflation.
Ross’ final point is that, whilst potentially only a short-term issue, the pressures created by the widespread increase in energy prices are considerable. He says “Northern Ireland’s largest domestic energy retailer, Power NI, is increasing its prices by over 21 per cent in January 2022. This is just one example of a change that will imminently and considerably impact upon businesses and consumers across Northern Ireland, again putting pressure on spending.”
However, it is possible for Northern Ireland’s business owners to navigate the situation with the right guidance. Ross concludes, “The positive news is that owner managed businesses in Northern Ireland are renowned for being both creative and resilient. We know from years of working closely with these businesses, that despite the economic challenges that they are facing, many will come up with intelligent solutions.”
“Our pragmatic advice remains the same – we should all hope for the best – whilst supporting our clients to forecast and plan for the challenges ahead to enable them to successfully navigate these uncertain times.”
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