Inflation has hit an all-time low in the UK. This is good news for wages and house prices, but what does it really mean for small businesses?
Inflation was down to 1.6 per cent in March, its lowest since 2009. But it is still important that small businesses remain mindful of its effects. Even a small increase could hurt capital expenditure and increase the cost of production for goods businesses.
Controlled inflation is seen as healthy stimulus for the economy as a whole, but it can be a challenging beast to keep in check. The Government’s target inflation rate is set at 2pc, and anything over this figure can reduce the value of money, both for individuals and businesses.
Larger corporations are generally better positioned to bear the brunt of inflation, as it can be offset by savings generated by economies of scale. Small firms, however, often take a direct hit on margin.
High inflation can also have unexpected side effects: it can negatively affect currency exchange rates and bring about an export slump: rising prices in the UK make goods and services uncompetitive on a global scale.
