UK Inflation Predictions for 2023

Rising energy prices continue to push UK inflation up, which hit 10.1% in July – a figure that’s five times higher than the target set by the Bank of England. And predictions for next year’s inflation are now out, with experts warning that it’s set to continue rising at a significant rate.

The graph below from IGD gives a visual overview of the Bank of England’s forecast for inflation rate for the next few years. It predicts that inflation rate could peak at 13% in early 2023; however, other industry experts have predicted that the rate could peak considerably higher than this.

How High Could Inflation Go In 2023?

As we mentioned above, the Bank of England has predicted that the inflation rate will peak at 13% during next year’s Q1. Yet investment bank Citi and the Resolution Foundation are warning that it could reach 18% and 18.3% respectively. This would make the inflation rate the highest it has reached in just short of 50 years!

If you’re interested in finding out your own personal inflation rate, The Office for National Statistics (ONS) has released a personal inflation calculator. This gives you a great insight into your spending habits and allows you to identify how much spending has increased by and which items are contributing most to your bills.

What Does Higher Inflation Mean For Small Businesses?

Small businesses are being hit especially hard by the current inflation rate. Primarily it is energy prices that are causing the biggest issues, especially for businesses which rely on electricity-heavy processes.

Employees will most definitely be feeling the crunch too, with many requesting pay rises or leaving for higher paying jobs – so wages and staff retention can be difficult to manage in these times. Supply pressures are also problematic, with prices going up across the board for raw materials, transport and imports. But there are steps you can take now to help your small business manage through this challenging period.

Firstly, take steps to reduce your energy consumption, if possible, you can find some tips here on our blog. We are hopeful that assistance, in some form, is on the way regarding business’ energy prices with new PM Truss considering a few options.

Secondly, now is a great time to audit your prices, there is a great ‘break even’ guide for small business’ here. This activity could help you can get a full picture of your business’ finances and make appropriate decisions about switching suppliers, setting budgets, and increasing your prices. And you should also take this audit and make reasonable predictions for the next 6-12 months – apply this information to your business plan so you have options should inflation continue to rise.

When Will The Inflation Rate Come Down?

It’s very difficult to predict when there are so many factors at play, but the Bank of England is forecasting that the inflation rate will gradually return to its target of 2% before 2025. Does this seem a little optimistic? Potentially. All we know for certain is that it’s looking like it’s going to get worse before it gets better.