Firms want more help as activity set for summer fall – Daily Business

Andrew Bailey: bank hesitating on inflation control

Companies are seeking more help with energy and labour costs as a CBI survey points to a further fall in activity over the summer.

Expectations are broadly unchanged from April, when the report was last published, and extend a period of negative predictions for growth that began in late 2024, says the CBI

Its latest Growth Indicator indicates a sharp fall in business volumes across all sectors.

Alpesh Paleja, CBI deputy chief economist, said: “Activity continues to be buffeted by weak household spending and clients’ reluctance to commit to big expenditure.

“Ongoing tensions in the Middle East are adding another layer of pressure, with firms increasingly alert to the risk of further cost increases and supply chain disruption.

“Firms need an easier and cheaper environment in which to operate. That means further measures to cut business energy costs, action to ease high labour costs, and a serious push to reduce the regulatory burden that is weighing on investment, employment and growth.”

Bank of England governor Andrew Bailey said last week that policymakers are prepared to tolerate inflation above its 2% target for a period to avoid weakening the UK economy.

Mr Bailey told a gathering in Reykjavik, Iceland, on Friday that employing measures to rein in inflation would not be a preferred course of action while businesses and households struggle with rising costs caused by geo-political pressures.

His comments point to the difficult trade-off between controlling inflation and supporting economic activity. UK inflation currently stands at 2.8% and is expected to rise further as more war-induced costs work their way into the supply chain.

Mr Bailey said the bank is keen to avoid adding to the “volatility” and will allow inflation to remain above target to cushion the impact of wider economic pressures.

“Given the context of softness in the real economy and uncertainty around the scale and duration of the shock, tolerating temporarily above target inflation to provide some support for the real economy is an appropriate way to approach the trade-off,” he said.

“There is nothing monetary policy can do to prevent higher energy prices from affecting businesses and households.”

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