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istock_relations_:Oleksii Liskonih

Tough times ahead as UK business reckons with crises

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As the war in Ukraine continues to rage, Makbul Patel examines how a European conflict can have very real economic consequences closer to home.

22nd Mar 2022
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These crises are like the buses. First we had Brexit, then came the doom of Covid and now we have the tragedy of the Ukraine War. It appears that human appetite for causing misery and suffering cannot ever be fulfilled. Each era of politicians needs something to pursue at a cost to the people they govern. My thoughts and prayers go out to all those suffering oppression and grief. For them, the trauma is real and tangible.

As if we were in an entirely different universe life trundles on for us in the UK. We do what we can through charity and sympathy. And we have bucket loads of sympathy it appears.

Sanctions upon sanctions are piled upon Russia yet, at the time of writing, there appears to be no give on the Russian onslaught on Ukraine. The sorties continue. Putin and his team require unconditional surrender. Maybe they know something we don’t. One thing is for certain that the sanctions are having an effect on those outside of Russia.

Cut off at the knees

Prices, if they weren’t bad enough before the war, have gone stratospheric. The relentless increase on household groceries, gas, electric and fuel are leaving many in the UK on the brink of economic collapse. Food banks have now been joined by ‘fuel banks’ to help those in desperate need. They offer financial help and advice on fuel poverty. It makes a mockery of UK being in the G7; a global power where people struggle with the basics. 

Businesses beginning to show the green shoots of growth post-covid are being hammered again with rising costs. A perfect storm as the barrage of increase comes from all sides. Staff wages, fuel prices, raw materials, gas and electric. War and pestilence are pulling this chariot over the precipice.

Though we are fortunate not to be going through the same turmoil as the Ukrainians, and I never wish to make light of it or undermine the tragedy, the threat to business in these challenging times is real and immediate. Oh, and there is still the small matter of energy price caps and National Insurance increasing in April.
 
Where does this then leave UK business? In short, it passes on the costs to the customer, reduces its fixed costs (cough, staffing, cough) or reduces the product or service for the money they pay.

Who hasn’t gone into a supermarket and become depressed at the reducing size of everything but prices still going up? I saw a bunch of grapes for a fiver the other day. Surely a mistake, but no, it was real. Makes me sound like a grumpy old man, but it’s definitely pull-your-socks-up time, again.

Production cost challenges 

production chart

This Purchase Manager’s Index (PMI) shows what real buying prices are in industry. I doubt very much the latest figures include the effect of the Ukraine War. Any values above 50 indicate an increase (with 50 being an average).

We’re still undoing the shackles of our failed New Year resolutions and production costs are already painting a pretty bleak picture for 2022. A manufacturer will immediately pass on the costs to the next in the chain. The downstream passing on of higher cost is met by further and further resistance until it comes to the supplier immediately prior to the consumer. This is where the fissure of resistance to price increase is the most difficult to overcome.

But the final cost to the ordinary person has sent the charts skyrocketing. With the conflict in Ukraine the experts doubt very much gravity will decide to bring figures down any time soon.

cost chart
 
These are dark days where we will look back in years to come and think, how the heck did we come through? But come through we will. The strains on our day-to-day finances will be severe and although I don’t want to be too grim the tough times will continue in the short term.

There are still many pieces that need to be coming together. Most of all international conflicts have to reach an immediate and peaceful conclusion. Not only because we are feeling the pinch, but because the priority is the preservation of human life. 

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