Businesses and not just households need support with soaring energy bills, with the situation exacerbated by the Bank of England’s decision to further increase interest rates, according to the British Chambers of Commerce.
Responding to the Chancellor’s announcement on the cost-of-living crisis, Hannah Essex, Co-Executive Director of the BCC, said: “While assistance for households is welcome, businesses will be dismayed at the lack of support for those firms also struggling with their energy bills. Many have already been hit by steep rises, with further significant spikes expected as existing fixed tariff contracts come to an end in the coming months.
“Smaller firms are particularly exposed as they have neither the protections or financial support provided to households, nor do they have the negotiating power of larger businesses.
“Without action, soaring energy bills will force many firms to raise prices further which will, in turn, fuel the cost-of-living crisis for consumers and further drive surging inflationary pressure.
“The Government should expand of the Chancellor’s rebate and clawback scheme for households to include small firms, as well as delay the impending National Insurance rise. These steps would give firms a better chance to weather the current storm without needing to pass costs through to consumers in the form of price rises.”
The Government announced it would give households a £200 discount on all electricity bills from October – which will have to be repaid later – plus a £150 Council Tax rebate on properties in bands A to D.
It comes as the average household’s energy bill was predicted to rise by £693 annually after a 54% increase to the energy price cap. The cap, which limits how much providers charge per unit, is going up because of an unprecedented rise in gas prices
Just moments after the announcements, the Bank of England raised interest rates for the second time in three months in a bid to cool soaring prices.
The increase to 0.5% from 0.25% comes as prices climb at the fastest rate in 30 years and there are fears that pace will accelerate.
By putting up interest rates, the Bank of England hopes to make borrowing and spending more expensive, dampening down consumer prices.
But Suren Thiru, Head of Economics, at the British Chambers of Commerce, said it was unlikely the increase would have the desired effect: “While expected, the decision to raise interest rates will cause considerable consternation among households and businesses given the mounting cost pressures and soaring energy bills many are facing.
“Although a quarter point rise may have a limited impact on most firms, many will view back-to-back rate hikes and four Monetary Policy Committee members voting for a more significant rate rise, as a leap towards a sustained period of significant monetary tightening.
“The Bank of England is seeking to dampen an inflationary surge it has little control over. Higher interest rates will do little to limit the soaring energy costs and persistent supply chain disruption that are driving the current spike in inflation.
“With the increase in Ofgem’s energy price cap from April set to push inflation to around 7%, despite government support, further interest rate rises are inevitable. However, raising rates too aggressively risks undermining confidence and lowering growth.
“There should be a greater focus on government’s Supply Chain Advisory Group and Industry Taskforce to work with industry to deliver practical solutions to ease the supply constraints that continue to drive the upward pressure on prices.
“Action to limit the unprecedented surge in costs facing businesses, including financial support for those struggling with soaring energy bills, would help ease the pressure on firms to increase prices further.”