Published Wednesday 10th November 2021

Thanks to the success of the coronavirus vaccine rollout and many businesses’ resilience and adaptability, the UK economy is in a better position than many experts predicted during the initial aftermath of the pandemic.

However, this is not to say that recovery is sustained and equal across the nation – there are some regional and sector-based imbalances.

As businesses and households face higher costs, recent months have also highlighted inflation rates as a significant obstacle in the UK’s road to recovery. How could this sharp rise in the cost of living impact the nation’s recovery from Covid-19?

Inflation in the Wake of Brexit & Covid

August 2021 saw the biggest jump in inflation from one month to the next, reaching a record 3.2%. The Office for Budget Responsibility (OBR) suggests that inflation is set to hit 5% during 2022 – an even higher figure than previous estimates.

Many experts are warning that costs will remain high as Brexit continues to put pressure on supply chains, as well as businesses needing to contend with more restrictive trade barriers, port bottlenecks and higher levels of demand over supply.

Supply disruption caused by the pandemic and subsequent lockdowns also continue to have an effect on increased prices as the cost of raw materials is also on the rise.

The chancellor has stated that while the overall short term forecast for the economy skews towards the positive, the problems caused by supply chain disruptions and increasing energy prices will take months to resolve.

A Higher Cost of Living

As the cost of living climbs, consumers and businesses are facing a hard winter ahead. Inflation combined with the blow of increased taxes, a cut to universal credit, and a public sector pay freeze are set to slow the rate of growth.

The OBR estimates that household income levels will only start reaching a pre-pandemic level by 2023. This lost income will likely affect overall growth, slightly slowing the rate of long-term recovery.

Hope for the Future?

Despite this somewhat bleak picture, there remains some hope for the nation’s annual economic growth. While inflation may slow the rate of recovery, the OBR still predict 6.5% growth in 2021, whereas previous forecasts were set at 4%.

Predictions for GDP growth in 2022 are estimated at 6% – this is a slight reduction from previous estimates, partly due to the unexpected success and unforeseen levels of growth in 2021.

Like many of the problems we’ve seen post-Covid, only time will tell how lasting their impacts will be.

In the meantime, businesses must remain resilient and free up resources that’ll help them focus on building back better than before. If you would like to find out how an effective cost management strategy could support your business in a period of recovery and growth, get in touch with the ERA team today.