UK business inflation pressures hit three-year high as IFS flags £35bn funding gap

UK businesses face their sharpest inflation pressures in three years, according to a BDO report. The Institute for Fiscal Studies separately warns of a funding gap of up to £35bn ahead of the Autumn Budget. Brent crude moved little on Monday.

UK businesses are facing the sharpest inflation pressures in three years, driven by rising energy, fuel and raw material costs. Accountancy and advisory firm BDO reports that its inflation index rose to 103.65 in September, up from 102.18 in August and the highest reading since June 2023.

Output falls ahead of the Budget

BDO also found that output fell across UK manufacturing and services last month as domestic demand softened. The firm warns that these elevated costs and weakening demand are putting renewed pressure on companies before the Autumn Budget.

According to BDO's Scott Knight, head of growth: "Businesses head into this Budget with one clear message: no surprises." He adds that hiring intentions are low and growth is starting to plateau.

IFS flags a £35bn funding gap

The Institute for Fiscal Studies says the surge in inflation after the start of the Iran war has taken a bite out of the UK's spending plans. It calculates that chancellor John Healey faces a funding gap of up to £35bn, because rising inflation has eroded the value of departmental cash budgets and pushed up government borrowing costs.

Without a plan to cover these pressures, including demand for more defence spending, the IFS warns that Healey's budget later this month risks being a work of fiction.

Oil edges lower on Russia-Ukraine energy pause

Meanwhile, Brent crude was 0.25% lower at $104.46 a barrel after being down around 2% a few hours earlier. Trump declared that Ukraine and Russia agreed to halt attacks on each other's energy facilities.

Capital.com analyst Kyle Rodda says the true impact of the US diesel deal with Russia is piecemeal, especially as Middle East refining remains heavily compromised and Ukrainian forces strategically strike Russian refineries.

Source: The Guardian

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