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Wednesday, October 20, 2021

Economy faces crisis as Brexit supply-side crisis bites

The Guardian reports that restaurants and hotels are wrestling with “terrifying” inflation running as high as 18%, bosses have warned, as supply chain disruption and labour shortages wreak havoc in the hospitality sector.

The paper says that food and drink producers have been squeezed by a combination of higher prices for raw materials, soaring wages, increased costs for transport amid the HGV driver shortage, and rising energy bills:

Inflation in the UK hit hit 3.2% in August, rising from 2% in July, according to the consumer prices index measure of inflation and figures from the Office for National Statistics (ONS).

Inflation is at its highest level in the UK since March 2012, and it is expected to increase further, adding to the squeeze on consumers just ahead of government raising taxes.

Soaring gas and electricity prices will also have an impact on household bills and the Bank of England expects inflation to rise above 4% this winter, well above its 2% target, increasing expectations that it will be forced to raise interest rates.

Manufacturers are facing price rises of between 30% and 40% for raw materials, according to Stephen Phipson, chief executive of trade body Make UK, which could become critical for certain firms if they are not able to pass on those costs.

“To the extent we are seeing now, they are not passing on all of it and that can only persist for a number of months, six months would be my best guess, before we start to see real failures in terms of businesses,” Phipson said.

Phipson said firms are, like many other sectors of the economy, suffering from the lack of availability of lorry drivers.

However, the government’s recent moves to improve the labour squeeze in the logistics industry – allowing drivers from abroad to apply for temporary visas and a relaxation on the number of deliveries permitted within the UK for foreign-registered trucks, also known as “cabotage” – have not yet improved the situation, according to trade body the Road Haulage Association (RHA).

Government policies on non-British workers, Brexit and the pandemic all have a part to play in this, but whatever the cause, it will be consumers who will pay for it.
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