Significant work required by government to gain trust of businesses again, experts says

The UK government still has an “awful lot” of work to do to regain the trust of UK businesses despite the fall in inflation, according to Neil Berry, tax partner at MacIntyre Hudson.     

The Office for National Statistics reported that inflation in the UK dropped to 7.9% in June, with many economists predicting a smaller drop to 8.2%.   

Chancellor Jeremy Hunt welcomed the drop, but also acknowledged that the government remains aware of the significant concern high prices continue to pose for families and businesses.   

Berry says: “To reinstate confidence of UK businesses, the government and associated components that feed into the macro-economics of this country, need to have a credible and sustained period where the reality and the data are heading in the same direction. 

“The behaviour of the government and a lack of a credible plan has dented their position more than they perhaps imagine. We need to see some solid leadership for a prolonged period and not just vote-winning politics.”  But taking a more positive spin on the economic picture, Martin Beck, chief economic advisor to the EY ITEM Club, argued that the outlook is now more favourable than it has been in recent months. 

“Although inflation remains well above the 2% target, the direction of travel is now looking more favourable, following a period when UK inflation appeared to be very sticky in comparison with other economies,” he said. 

‘Enormous number’ of factors to address  

But MacIntyre Hudson’s Berry goes on to argue that the UK is not in the clear yet after just one month of figures suggesting inflation has fallen. 

“There are an enormous number of competing factors that need addressing. Short, medium, and long term issues from inflation today to the ability to meet the financial needs of the country 20 years hence. 

“Indebtedness continues to be a problem for businesses and the country. Productivity remains problematic, our relationship with the EU and the rest of the world and geo-political matters that are beyond our control, will impact the UK.”   

To tackle these issues, there must be better collaboration between the government and businesses, says Berry. 

“Government needs to address the systemic issues within the management of the country. Departments’ need to function correctly, for example with HMRC, planning, green policy and public services . There may be decisions to be made that will not win votes. But they will be the right thing for the country as whole in the fullness of time.” 

Insolvencies rise as ‘perfect storm’ of pressure hits businesses   

In a similarly damning indictment of the UK’s economic picture, Insolvency Service data published in July depicted a 79.4% rise in company insolvencies since June 2022, despite falling from May to June 2023. 

Alan Fallows, director at Xeinadin corporate recovery, said: “The continuing increase in company insolvencies demonstrates the pressure cooker many businesses are in as a result of a perfect storm of rising interest rates, inflation across many key business costs from energy to labour, repayment deadlines for Covid-related loans, and more aggressive pursuit from HMRC.” 

Additionally, Fallows does not believe there will be much respite for struggling businesses in the near future and expects this trend to continue.