Stormy weather? What if... UK inflation soars beyond 7pc?

Commentators predict that the UKs 2022 inflation should ring out at somewhere between 3.0pc and 3.5pc though I am far from sure this is credible. Just last week, one of my more pessimistic accountancy friends suggested that true household inflation may exceed 15pc - let's hope he's well off the mark. You may have read that flatpack furniture specialist Ikea recently confirmed it has increased the average price of products in its UK stores by 10% due to rising supply chain costs. The retailer said it has been forced to increase prices in the UK by more than the global 9% average due to local market conditions including increased HGV and logistics costs. According to the latest official statistics, cost of living in the UK surged to 5.1pc during November, outstripping 4.2pc for October. I am usually a fervent optimist though my money is 6.0pc to 7.0pc. From my perspective, there is a tsunami of challenges about to hit our shores that could well prove worse than the financial crisis of 2009. Turbulent waves are to pound us from around the globe, that is so much harder to calm by government.

The first mountainous wave is set to land early on Saturday, January 1st when new border controls on animal and plant products from the EU come into effect, piling yet more pressure on our food supply chains, already burdened by global warming, an increased prevalence of crop failures, soaring commodity prices plus the lack of ships and containers. The UK is overdue for a significant correction in the price we must pay for food though I accept that this won’t happen in a single step. Currently UK consumers pay just 8pc of total average household incomes on food and drink. This was not the case in 1957, as Europe recovered from the devastations of WWII, when the UK spent an impressive 33pc of household income putting food on our tables. The UK currently pays half the price than in almost every other country in the world, bar the US and Singapore – and that’s 8pc less than the rest of Western Europe.

The next tempestuous wave is the ongoing energy crisis. For as many years as most of us can remember, the UK has been shielded by a robust harbour built of 56 years of eye-watering revenues generated from the exploitation of North Sea Oil and Gas. In the absence of any new fields being discovered, the latest data suggests this truly exceptional bounty could dry up altogether by 2030, leaving us dangerously exposed to the changing winds of global energy commodity market manipulation. Others are to profit take at our expense. On the plus side, the UK’s renewable electricity outpaced its fossil fuel generation for the first time in 2020 and should remain the largest source of electricity, according to an independent climate think tank Ember, that revealed that renewable energy generated by wind, sunlight, water and wood made up 42pc of the UK’s electricity compared with 41pc generated from gas and coal plants together. Though that still leaves a massive reliance on buying energy from abroad until new nuclear power stations come on stream. The commissioning of Hinkley Point C that should supply six million homes has been delayed by three years to at least 2026. In our current vulnerable state, energy bills are set to rise by as much as 30pc in 2022 if gas and electricity prices continue to soar and more providers go bust, trapped between a rock and a hard place as they were unable to put their prices up because of price caps designed to protect the consumer. The research firm Cornwall Insight forecasts that the energy price cap, currently set at a record £1,277 a year from 1 October, is going to have to be significantly boosted in April 2022 as our energy crisis continues. The firm expects the energy price cap to be put up by about 30pc, which is necessary to help keep the lights on.

The next wave to batter us with its chilling splash is from a much-anticipated rise in interest rates that are set by the Bank of England. Interest rates have remained at historic lows for years though history has the nasty habit of repeating itself. The bank had been reluctant to increase rates, though the first increase to 0.25pc in December almost certainly heralds the start of a pattern. Commentators suggest that 2022 is to end with a 2.0pc base rate. Few of us can remember 1979 when we paid 17pc interest rates on our loans and mortgages - that was 42 years ago or 34 years after the end of World War II. It might be worth calculating what your monthly mortgage repayments would be should interest rates edge up in that direction. You would be alarmed by the answer. On top of this is the raft of already announced tax hikes.

And last but not least is a destructive wave created by the lack of appropriately qualified people to help fill job vacancies, currently hitting its highest level for 50 years, which at least reduces everyone's hope of a rapid recovery from what we all pray is to be the worst of Covid. During December one of my friends shortlisted three good candidates from a limited pool of applicants, though they all accepted other opportunities before interview. The moral of this highlights the importance of keeping communication channels open from the moment a worthy candidate expresses interest. Leave nothing to chance as your competitors won't. There was a time back in the late 1990s when my own business was almost destroyed by a larger competitor continually poaching our best people. Those times of unfair practice may be returning.

Cutting through this angry froth, I know how tempting it is for business owners to delay passing on price rises from one's suppliers until the last possible moment, though that tactic only erodes one's resilience to tomorrow's battering. There is a danger of being pinned to a corner with no more room to negotiate. If you are a trusted supplier, then the last thing your clients really want is for you to go to the wall. My advice to you is that we must be candid about the gravity of the current situation. Action needs to be taken now even if that means edging up one's prices in steps. The key is in taking decisive action and communicating ever more clearly to one's valued customer base. Get the timing right and you can break through the dark clouds into a bright opportunity.