ACCOUNTANCY BLOG

How UK businesses get crippled by the record-high inflation and how to cope with it?

Last May, official figures for inflation rate have hit a record level of %9 and it is continuing to soar as we almost pass October. The current cycle of inflation is mainly believed to be caused by the Russian invasion of Ukraine. The infamous war has not only brought a human tragedy but also tremendous […]

Last May, official figures for inflation rate have hit a record level of %9 and it is continuing to soar as we almost pass October. The current cycle of inflation is mainly believed to be caused by the Russian invasion of Ukraine. The infamous war has not only brought a human tragedy but also tremendous negative impact on economies. The risk of disrupted supply of oil and gas from Russia is causing stock markets to react. Higher fuel-oil prices are bringing even higher prices for everything as almost every product needs to be freighted around the globe. The difficulties in exporting grain to the world and the ambiguity caused by nuclear threats of nations are even inflating the economies more than ever and causing uneasiness in markets. Under these economic circumstances, UK inflation has hit a 40-year-high while more fragile economies like Turkey’s have got its share of inflation around %80 rate according to official figures.

How UK is responding

UK economy and businesses are usually known for their endurance to negative conditions. However, world’s economic depression will force UK businesses to close one by one unless solid actions are taken by the government. On the other hand, there is one more imminent danger lurking in the dark. The customers whose purchasing power is eroded by the inflation are more reluctant for spending money on goods and services. Due to the fear of recession, they want to hold onto their money or delay things that they would normally spend money on, so, there is less money entering the economy. Central banks would favour an increase in interest rates to reduce inflation. However, this could put a hold on the economy even further due to more saving and less spending. This economic slump can be described in other words as a misallocation of resources.

Simple tricks to evade the fall

There are some basic tips and tricks to overcome the economic difficulties of our era. Businesses may need to preserve cash as much as possible under these circumstances. If interest rates continue to increase, some businesses may be forced to sell up, which could mean buying opportunities for businesses that hold enough cash. Another important tip to cope with the inflation is diversifying your income sources. UK businesses must not rely on a few large-scale customers but look out for other passages and more small-scale customers on the side. Cutting down on your overhead expenses for the time-being might be a wise action to take as well. Now, is a time to sit back and look for opportunities. You may need to save some money for the financial opportunities that could arise. While looking for new opportunities and customers, don’t ever forget the ones you currently have. Marketing to your current customers may not boost your turnover this year. But it will most probably prevent you from losing your customers and increase their loyalties and bonds to your business which is more crucial than ever through this economic earthquake.
The world’s financial system will probably survive from this crisis as it always has up until now. UK needs to wait for the storm to pass and the cosy weather to arrive while being neither pessimistic nor too optimistic.

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