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Chamber responds to shock fall in inflation

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Inflation

The latest inflation figures could not be more timely, given that the Low Pay Commission is pondering its recommendations on increasing the National Living Wage.

The Office for National Statistics (ONS) reported on Tuesday that the Consumer Prices Index (CPI) fell to 2.6% in June, down from 2.9% in May, the first such fall since April of last year.

Inflation has been rising since the EU referendum result last June sent the pound tumbling, so pushing up the price of imports.

Economists had expected the rate to stay at 2.9% in June, or possibly slip to 2.8%, before rising above 3% in the autumn.

The ONS says the unexpected drop to 2.6% was mainly due to falls in fuel prices, which more than offset rising prices for furniture and furnishings.

More must also be done to ease the burden of high upfront business costs which continue to impede firm’s ability to invest, recruit and grow.

Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “While the fall in inflation in June will surprise many, consumer price growth is likely to resume its upward trend in the coming months with the elevated cost of imported raw materials still filtering through supply chains.

“Inflation remains a major risk to the UK’s growth prospects this year, with rising cost pressures for consumers and businesses likely to dampen overall economic activity.

“However, it remains likely that the current spell of high inflation will be relatively short lived with moderating price growth at the factory gate indicating that inflationary pressures in the supply chain are starting to ease.

“If this trend continues as we expect, inflation is likely to peak sooner rather than later.”

The British Chambers of Commerce forecasts that inflation will hit 3.4% by the end of the year before easing back in 2018 as the impact of the post-EU referendum slide in sterling drops out of the calculation.

Rob added: “With UK economic conditions softening, it is crucial that the Bank of England’s Monetary Policy Committee holds its nerve on interest rates. Raising rates too early could undermine consumer and business confidence.

“More must also be done to ease the burden of high upfront business costs which continue to impede firm’s ability to invest, recruit and grow.”

Meanwhile, the British Chambers of Commerce has responded to the Low Pay Commission’s consultation on the National Living Wage.

More must also be done to ease the burden of high upfront business costs which continue to impede firm’s ability to invest, recruit and grow.

The rate paid to over-25s rose from £7.20 an hour to £7.50 in April, an increase of 4.2%, and the government had set a target of it reaching £9 by 2020.

The Low Pay Commission has consulted businesses before it recommends what the 2018 increase should be this autumn.

The British Chambers is urging a cautious approach, calling on the Commission to limit the rise to 2.7%, to £7.70, to help low-paid workers deal with the consequences of inflation without pricing people out of jobs.

Rob said: “Setting the National Living Wage must be done cautiously, taking into account economic circumstances, so that people are not priced out of jobs.  The Government’s current policy was set before the EU referendum and so does not reflect the uncertainty caused by Brexit.

“Businesses are already facing high costs when it comes to employing staff – including the Apprenticeship Levy, pensions auto-enrolment and skills charges.

“The rise in the National Living Wage in April brought a further increase in wage bills, with the need to retain differentials multiplying their costs further.”

© Cumbria Chamber of Commerce

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