Businesses should keep a sharp eye out in the New Year for any economic changes that could adversely affect their trading positions.
The Office of National Statistics (ONS) has released new figures showing that retail sales volumes rose by 6.4 per cent in 2014; the highest year-on-year increase since May 2004. This culminated in higher than expected results in November where figures rose by 1.6 per cent; significantly more than the 0.4 per cent predicted. This was seen by many as a result of the successful ‘Black Friday’ sales on 28 November.
However, another significant factor in the increase in sales is the fall in inflation, which hit a 12-year-low of one per cent last month, according to the most recent Consumer Price Index.
For the majority of individuals this has led to a rise in their real-terms wages, which have lagged behind the increasing cost of living since the recession started and has prompted many to spend more at the shops.
The main reason for this sudden fall in inflation is credited to the tumbling price of oil, which has seen crude fall below $60 a barrel. However, SMEs should be on the lookout for sudden changes in the price of oil, which could cause inflation to suddenly rise, sparking an increase in interest rates.
While many people will be enjoying the freedom of having more buying power, there is a danger that a sudden increase in fuel prices will drive inflation up, forcing the Banks of England to trigger an increase in interest rates. This could be potentially damaging to SMEs that aren’t prepared to meet a fall in demand or experience increased costs following an interest rate hike.
An interest rate increase is certainly possible at some point in the New Year, but whether this will be triggered by changes to inflation is yet to be seen.
Businesses need to prepare themselves for sudden changes in Britain’s economic climate. In order to do this, SMEs need to be adaptable and ready to deal with any challenges 2015 might throw at them.