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Business leaders issue warning on consequences of rising inflation

There have been warnings from leading industry figures that the latest inflation figures will become even worse as businesses are forced to push up prices.

The latest data from the Bank of England shows prices have risen by an average of 3.1 per cent over the past 12 months, with warnings that it could hit four per cent by December.

Ian Wright, chief executive of the Food and Drink Federation, told MPs sitting on the House of Commons Business, Energy and Industrial Strategy Committee, that restaurants and hotels are looking at a “terrifying” inflation rate.

According to the Guardian newspaper, he told MPs: “In hospitality, which is a precursor of retail, inflation is currently running somewhere between 14 per cent and 18 per cent.”

Mr Wright warned that in his view the UK food and drink industry can expect current challenges to last for several years to come.

Another leading figure in the hospitality industry added that the current inflation figure is part of a double whammy, coming hard on the heels of changes to VAT rates.

The tax breaks for pubs and restaurants, which saw a VAT rate of five per cent increase to 12.5 per cent in October, will revert to the full 20 per cent next April.

The cost of living is being pushed up by rocketing energy bills, which affect not just households, but the cost of running a business. This involves extra costs in running machinery, heating restaurants, pubs and offices and paying for transporting goods, and will almost certainly be passed on to customers. Rising wages are also adding to inflationary pressures.

There are shortages and bottlenecks in goods including building materials and computer chips – when suppliers fail to meet demand that also pushes up prices.

Kate Nicholls, Chief Executive of UKHospitality fears any recovery in the sector’s recovery will be derailed.

She said: “The inflation figures are extremely concerning for the sector, with costs for hospitality businesses across all lines rising by 11-13 per cent.

“Such rising costs have the potential to seriously derail the sector’s recovery – and its ability to boost national recovery – due to a heady cocktail of substantial increases in the cost of essential goods and services crucial to their businesses.

“Combined with suppressed sales due to labour shortages, it is inevitable that businesses will have no choice but to pass on some of this pressure to their customers through higher prices.

“Consequently, we urge the Chancellor not to compound matters with tax increases in the form of business rates and a return to historic rates of VAT.  Locking in the 12.5 per cent rate of VAT for the long term for hospitality will avoid building in more sustained inflationary pressures across the economy.”

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