Weekly Key Messages
Cost Pressures Continue to Hit Labour Market
The latest ONS data published on Tuesday showed the labour market continuing to loosen. Responding, our Deputy Director of Public Policy at the British Chambers of Commerce Jane Gratton told the media:
“The ongoing impact of business cost pressures, most notably from the national insurance hike, continues to hit the labour market.
“Unemployment remains high and vacancies continue to fall, on the quarter, with firms having to make difficult decisions on recruitment. Average earnings, including bonuses, gives a better picture of what businesses are facing, and between May and July that picked up to 4.7%.
“Our latest survey showed labour costs remain the biggest cost pressure for SMEs, cited by 73% of firms. Continued wage growth is also impacting the wider economy. The Bank of England Governor told our annual conference in the summer that it is an important factor behind persistent services inflation.
“Further employment costs are looming for businesses. The £5bn cost associated with the Employment Rights Bill poses a further threat to firms’ investment and recruitment plans. Without further amendment, the legislation will add even more to employers’ costs."
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Inflation Heaping More Pressure On Firms
Prices in the UK rose by 3.8% in the year to August, according to the latest data published last week. It means inflation remains well above the Bank of England’s 2% target. Our Research Manager, Stuart Morrison, had this take for journalists:
“Businesses will be worried by inflation holding at 3.8% at a time when cost pressures continue to bite, especially on wages. The BCC’s latest economic forecast expects inflation to remain at around this level until the end of the year.
“Firms are clear that April’s rise in national insurance, continued strong wage growth and higher tariffs are all eroding their operating margins. There is also growing concern that sticky inflation will limit the scope for further interest rate cuts.
“Ahead of the Autumn Budget, our message to the Chancellor is clear – there must be no new tax rises on business. Firms cannot provide the economic growth we all need if they continue to be hampered by rising costs.”
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Sticky Inflation Keeps Rates on Hold
There were no surprises on Thursday as the Bank of England announced the latest interest rate decision. The base rate was kept at 4%, very much in line with our forecast, as our Head of Research David Bharier explained to journalists:
“Today’s decision to hold interest rates at 4% was widely expected, especially after yesterday’s figures confirmed that inflation remains stubbornly high.
“A further hold aligns with the BCC’s latest forecast, which expects no further cuts this year. Global factors such as tariffs, conflicts, and fragile supply chains, alongside domestic pressures – higher taxes and uncertainty ahead of the Budget – are clouding the outlook.
“SMEs are wading through a swamp of rising business costs which is impacting on confidence, investment and recruitment. Our latest survey shows that 73% cite labour costs as the top pressure, driven by the increase to employer NICs.
“Breaking this cycle depends on boosting growth, exports and productivity – not further burdens on firms. The Chancellor will need to use the November Budget to support business investment and confidence, not undermine it with new taxes.”
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