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18 May 2022

Government must act now to prevent UK sleepwalking into recession amid ‘eye-watering’ inflation, says East Midlands Chamber

Commenting on the latest figures from the Office for National Statistics (ONS) showing inflation was 9% in the 12 months to April, up from 7% in March, East Midlands Chamber chief executive Scott Knowles said: “The 2% jump in inflation between March and April is eye-watering, and underscores the growing cost of living crisis facing households, and the damaging squeeze on firms’ ability to invest and operate at full capacity.

“The marked acceleration in the headline rate in April reflected the energy price cap rise, increase in national insurance contributions and the reversal of the VAT reduction for hospitality in the month.

“These added to the already-escalating cost increases for energy, people and raw materials, which resulted in two-thirds of East Midlands businesses telling us in our Quarterly Economic Survey for Q1 2022* that they expected being forced to increase their own prices in the following three months.

“The scale at which inflation is damaging key drivers of UK output, including consumer spending and business investment decisions – with cashflow falling for a net 3% of our region’s firms, it led to a 2% decline in investment intentions for plant and machinery in the first quarter of this year – is unprecedented.

“After confirmation that GDP shrank by 0.1% in March, this means there is a chance the UK will be in recession by the third quarter of the year – unless Government pulls all the levers available to it in order to alleviate the cost of doing business and the cost of living crises, which are essentially two sides of the same coin.

“While inflation may moderate a little over the summer, April’s inflationary surge is likely be surpassed in October as the expected energy price cap rise in the month lifts inflation above 10%.

“Soaring inflation means a June interest rate rise is inevitable. However, higher interest rates will do little to address the global factors driving this inflationary surge, and risks undermining confidence and aggravating the financial squeeze on consumers and businesses.

“Although surging global energy and commodity prices aren’t typically something in the UK Government’s direct control, more needs to be done to help consumers and businesses through this difficult period. This should include reversing the rise in national insurance contributions and cutting VAT on business energy bills to 5%.”