Higher prices could persist over the summer even if ceasefire talks between the US and Iran bear fruit, consumers have been warned, with economic shock waves likely to be felt “for many months to come”.
Disruption to global shipping, coupled with soaring prices for energy and raw materials, have driven up costs for UK companies, with the impact already filtering through to prices paid at the tills, according to fresh inflation figures.
Retailers have responded by launching promotions to tempt bargain hunters but businesses said it was getting harder to stave off price increases, and called on the government to go beyond existing measures to help alleviate the pressure.
Shop price inflation is already on the rise, according to figures from the British Retail Consortium (BRC).
Furniture and health and beauty products are among the items that have risen most in recent weeks, driving an increase in shop prices of 1.2% year on year in May. The rate was slightly above the three-month average of 1.1%.
High oil prices and the ripple effect of the prolonged closure of the strait of Hormuz shipping channel were among the factors cited by the BRC.
Customers can still find bargains on TV and audiovisual equipment, it said, as retailers target football fans getting “World Cup ready” for this summer’s tournament in the US, which starts next month.
Intense competition between supermarkets has also kept a lid on food price inflation, which fell to 2.7% in May, below the longer-term average of 3.1%.
However, while some promotions were likely to be extended over the summer as retailers compete hard for consumers’ disposable income, the trade body voiced doubts about the broader outlook for cost-conscious consumers.
“While retailers work hard to keep prices down for customers, they continue to face significant cost pressures, including higher energy bills and disruption linked to the conflict in Iran,” said Helen Dickinson, the BRC’s chief executive.
“Businesses cannot absorb these costs indefinitely, which risks pushing prices higher in the months ahead.”
She called for the government to cut the taxes and levies that make up two-thirds of companies’ energy bills, as well as “cutting red tape”.
Only 16% of businesses say they have been left unscathed by the turmoil in the Middle East unleashed by the US and Israeli attacks on Iran, according to a separate report from the British Chambers of Commerce (BCC).
Despite embryonic signs of a ceasefire, amid talks between the US and Iran over the weekend, the business body predicted lasting effects whatever the outcome.
“Even if the current ceasefire soon signals the end of the conflict, the economic reverberations will be felt for many months to come,” said William Bain, the head of trade policy at the BCC.
“The geopolitical kaleidoscope has been shaken, and there’s no quick fix.
“The ongoing uncertainty over the strait of Hormuz is deeply worrying for UK businesses relying on that maritime passageway.”
Research by the BCC found that 80% of companies reported an existing or likely future impact from the conflict, with energy price increases, shipping disruption and rising raw material costs cited as the most pressing concerns.
Manufacturing has been the hardest hit, with 68% of firms saying they have already been affected and a further 23% bracing for future impact.
Three-quarters of companies expect their energy bill to rise in the next year, while just over a third warned that they may not be able to pay.
Like the BRC, the BCC called for support from the government.
“Consumers will be given clarity over their energy costs in the coming days, but for businesses there’s no price cap,” Bain said.
“While government has provided some relief for high energy users, most UK firms remain vulnerable to the volatile global market.
“Ministers should consider funding renewable levies on business bills, roll out a national business energy advice scheme, and strengthen protections for firms against unfair pricing practices.
“In the medium term, accelerating grid reform, improving energy storage capacity and incentivising firms to electrify are essential to insulating our economy against these price shocks.”
A government spokesperson said: “We know many businesses are facing difficulties and the situation in the Middle East is adding to their costs.
“Our new British industrial competitiveness scheme will help tackle this by reducing electricity bills by up to 25% for over 10,000 manufacturing businesses, while our supercharger scheme will cut electricity costs for hundreds of our most electricity-intensive businesses.
“Just last week we announced new support for the chemicals and ceramics industries, and we continue to work closely with businesses and trade unions to ensure we’re doing what we can to help them through tough times.”
