Consumer price index figures showed the inflation rate fell from 7.9% in June to 6.8% in July – having been above 10% every month from September 2022 to March 2023.
NTIA CEO Michael Kill said: “Although there’s a positive shift on the surface with a 6.8% inflation rate for July, it still falls significantly short of the Government’s 2% target.”
He praised the decline in energy costs and the slower increase in food prices but added these costs still remain 15% higher compared to a year ago.
Kill also noted the continued challenges faced by hospitality and the night-time economy businesses due to high operational costs, leading to customer constraints resulting in a drop in visit frequency and spend.
Meanwhile, UKHospitality chief executive Kate Nicholls said: “Inflation has fallen this month from 7.9% to 6.8% – at better end of forecasts but core inflation remains flat at 6.9%. Driven by falling energy costs – suggesting if the Government acted to require energy companies renegotiate historic legacy contracts, it could fall more rapidly.”
She added: “Another fall in the overall rate of inflation is encouraging and indicates a positive trend.
“However, core inflation remaining flat at 7% does raise serious concerns that hospitality businesses will be hit hard by an inflation-linked hike in business rates next year.
“With rate increases following the September inflation rate, we need to see a dramatic fall in inflation by then or hospitality will face a business rates bill running into the hundreds of millions.
“It’s clear the fall in the overall rate has been driven by decreasing energy costs, which suggests further action on energy could result in inflation coming down far more rapidly. Ofgem has set out a number of recommendations to clean up the energy market and these should be implemented as soon as possible.”
Further rate hike predicted
NTIA’s Kill added: “The Bank of England’s stance on interest rates is yet to be seen but given the substantial gap between the current inflation rate and the 2% target, many analysts predicting a further rate hike in September.”
He also pointed out a divergence between the Prime Minister’s confidence in the plan and the actual challenges the sector is confronting, and expressed concern that immediate sectoral issues are being overlooked in favour of policy adherence.
He concluded: “The feasibility of the Government’s commitment to halve inflation within the year remains uncertain.”
Commenting on the inflation figures for July, the Office for National Statistics (ONS) deputy director of prices Matthew Corder said: “Inflation slowed markedly for the second consecutive month, driven by falls in the price of gas and electricity as the reduction in the energy price cap came into effect.
“Although remaining high, food price inflation has also eased again, particularly for milk, bread and cereal.
"Core inflation was unchanged in July, with the falling cost of goods offset by higher service prices.”
Unable to celebrate
Simon Massey, managing partner at accountancy firm, Menzies LLP, said: “This further drop in the inflation rate could indicate that inflation has peaked but businesses are unable to celebrate as prices are still going up and interest rates seem likely to remain elevated for a while yet.
“It is possible that some businesses have been hanging on and hoping that interest rates start to fall sooner rather than later, but they may have been hoping in vain. They must now prepare for the fact that interest rates are unlikely to fall back rapidly.”
He added businesses have had to withstand prolonged periods of high interest rates before with many recalling the base rate was at 5.25% back in 2008 and had been around that level for many years before.
“We all must remind ourselves how to manage our way in this more challenging climate and accept that rising prices and a higher cost of borrowing are likely to be around for a while yet,” Massey said.
“Many businesses have weathered similar storms, and now must do so again. Cash management is crucial to survival, and businesses can’t afford to lose sight of this in the coming months.”