The UK’s base rate of interest was held at 5.25% in September as the rate of inflation fell to 6.7% in the year to August 2023.

The fall in the rate of inflation surprised economists, who expected it to rise. The Consumer Prices Index (CPI) fell from 6.8% in July to 6.7% in August.

Slowing food price increases helped drive the fall, the Office for National Statistics (ONS) found, particularly prices for eggs, milk and cheese.

Alpesh Paleja, Lead Economist at the Confederation of British Industry (CBI), said:

‘Inflation fell again in August, defying expectations of a slight uptick. We expect inflation to continue falling over the rest of this year, but the recent uptick in global oil and domestic fuel prices means that the path back down may now be bumpier.’

Following the fall in the rate of inflation, interest rates were left unchanged at 5.25% by the Bank of England’s Monetary Policy Committee (MPC).

The MPC had previously raised rates 14 times in a row to tame inflation, leading to increases in mortgage payments but also higher savings rates.

Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said:

‘Businesses will be giving a cautious welcome to today’s decision by the Bank of England to hold the base rate at 5.25%. Constant hikes in the cost-of-borrowing have had a hugely detrimental impact on the firms we represent.

‘Companies need reassurance that decisions on interest rates are not knee-jerk reactions to the most recent inflation data.

‘We need clear direction from decision makers, creating a roadmap for business that really boosts confidence and investment.’

Internet link: Bank of England website ONS website CBI website BCC website

The National Living Wage (NLW) will rise to at least £11 an hour from April 2024, Chancellor Jeremy Hunt has confirmed.

The Chancellor confirmed the increase in a speech to the Conservative Party conference and said the rise will benefit two million low paid workers. People aged 23 and over are eligible for the NLW.

The Treasury stated that as a result of successive increases, a full-time worker on the NLW will be more than £9,000 better off than they would have been in 2010.

Katherine Chapman, Director of the independent Living Wage Foundation, said:

‘A rise in the statutory NLW from next April is welcome news for low paid workers, but may fall short of the real Living Wage next year, the only rate that is independently calculated based on the cost of living.

‘Our research … showed that 60% of people earning below the real Living Wage had used a foodbank in the past year and nearly 40% were regularly skipping meals.’

Internet links: GOV.UK Living Wage Foundation

Small and medium-sized enterprises (SMEs) are struggling to access finance and working capital, according to a report published by the Association of Chartered Certified Accountants (ACCA).

The ACCA’s data showed that small firms are struggling to access finance for a range of reasons, including rising interest rates. 57% of firms reported that borrowing in order to manage cashflow has proven more difficult over the last quarter when compared to the previous 12 months.

47% stated that supplier credit is now harder to access, and 27% said that accessing support from HMRC’s Time to Pay initiative is harder.

Small firms also found late payment to be a ‘persistent problem’ in the UK, creating barriers for cashflow throughout supply chains and leading to adverse consequences for some businesses.

Late payments by large businesses have the most detrimental impact on small firms, the research revealed: late payments from large firms generate a ‘domino effect’ throughout supply chains.

Glenn Collins, Head of Technical and Strategic Engagement at the ACCA, said:

‘More effort is needed in encouraging banks to reach out to the SME community and to provide more suitable financial products.

‘Equity finance offers an alternative route to raising funds. And government needs joined up thinking to make sure it is not accidentally restricting the flow of finance to this crucial sector.’

Internet link: ACCA website

The government has launched the UK Business Climate Hub to offer firms advice and support on reducing their energy bills and cutting their carbon emissions.

The Hub includes a free carbon calculator and a suite of new tools to help businesses measure, track and report on their emissions.

It also offers detailed advice on topics, including sourcing products from green suppliers and reducing emissions from freight and logistics, as well as the most cost-effective ways of installing solar panels and electric vehicle (EV) charging points.

The Hub is aimed at SMEs, which the government says are often keen to tackle climate change but find it difficult to know how to reduce their carbon footprint.

Minister of State for Energy Security and Net Zero, Graham Stuart, said:

‘The UK has cut its emissions more than any other major economy in the world. More and more businesses are recognising the business benefits of reaching net zero and we’re determined to empower them to do so.

‘The new UK Business Climate Hub is a one-stop-shop for businesses to find practical advice to reduce their carbon footprint and save on their energy bills.

‘Whether it’s fitting a low-carbon heat pump, generating energy with solar panels, or reducing the emissions from shipping goods, the new support will ensure businesses can drive towards net zero.’

Internet link: Business Climate Hub

The frozen Savings Allowance combined with rising interest rates will push over one million taxpayers into paying tax on their savings this tax year, according to research by investment platform AJ Bell.

In the 2023/24 tax year it is estimated that over 2.7 million individuals will pay tax on interest, up by a million in a year.

This year’s predicted total includes nearly 1.4 million basic rate taxpayers, a figure which has quadrupled in just four years, AJ Bell’s research found.

Individuals pay tax on interest they earn on savings that exceeds the personal Savings Allowance, which currently stands at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get no exemption and pay tax on all interest they receive.

Laura Suter, Head of Personal Finance at AJ Bell, said:

‘These figures highlight just how many taxpayers are facing a tax bill for their savings interest this year – a huge leap when compared to last year. The combination of higher interest rates and people having shunned ISA accounts in recent years means that the number paying tax on their savings has more than tripled in the past four years.

‘Rising rates and a frozen personal Savings Allowance means some individuals are being taxed despite having relatively modest pots of cash set aside for a rainy day. To add insult to injury, because inflation is so high, they aren’t even making a real return on their money – yet they are still being taxed.’