Supply chain crisis ‘could last until 2024, business leaders warn MPs

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The supply chain crisis could last until 2024, business leaders warned today – as families braced for a £23-a-week hike spending on food and fuel.

Bosses from a range of sectors warned staff shortages and price rises were hammering small businesses, with one warning he expected to see bankruptcies within six months.

‘Six months ago our businesses all thought this was transitory, now every business I know expects this to last into 2023 and 2024. Every single one,’ Ian Wright, CEO of the Food and Drink Federation told the Commons business, energy and industrial strategy committee.

He said hospitality prices – visiting cafes, restaurants and pubs – are rising at 14-18 per cent a year and something similar could be seen in supermarkets.

MakeUK, which speaks for manufacturers and heavy industry, said its members are suffering an increase of 30-40per cent in material prices.

Chief executive Stephen Phipson said it was a ‘matter of months, probably six months, before we start seeing failures in business’, particularly among small and medium-sized businesses that serve major manufacturers.

He warned price rises would severely delay Boris Johnson’s levelling-up agenda, according to the Financial Times, which reported the comments.

Separately, it emerged that UK households expect to end up paying as much as £23 more per week for food, non-alcoholic drinks, electricity, gas and motor fuel by the end of the year, according to consultancy firm Retail Economics.

According to data from the ONS, households spend approximately £109 per week on average on food and non-alcoholic drink, electricity and gas, and motor fuel.

Polling by the research firm found consumers expect this to rise by a fifth to some £132 per week before the end of 2021.

Inflation actually dipped to 3.1 per cent in September easing pressure on the Bank of England to hike interest rates – but businesses warned there is worse to come.

The headline CPI rate was down slightly from the 3.2 per cent recorded in August, despite analysts’ expectations it would hold steady.

The figure will give the Bank of England pause for thought amid a growing clamour for a rate rise as soon as next month to stop prices getting out of control.

However, the Office for National Statistics stressed that the downward shift was partly due to the effects of the government’s Eat Out to Help Out discounts unwinding 12 months before.

The British Chambers of Commerce said a ‘renewed inflationary surge’ is still looming, with the Bank expecting the level to top 4 per cent this year – more than double its target.

But in interviews this morning, Business Secretary Kwasi Kwarteng urged calm on the inflation threat. ‘I am confident it will be contained. But we will have to wait and see,’ he told BBC Breakfast.

Chancellor Rishi Sunak said: ‘Global shocks have pushed up prices around the world, and we are working with businesses and international partners to address these pressures.

‘We are supporting people with the cost of living, including through a new £500m support fund to help vulnerable households, the energy price cap, and assistance with energy bills through the winter.’

Mike Hardie, head of prices at the ONS, said: ‘Annual inflation fell back a little in September due to the unwinding effect of last year’s Eat Out to Help Out, which was a factor in pushing up the rate in August.

‘However, this was partially offset by most other categories, including price rises for furniture and household goods, and food prices falling more slowly than this time last year.

‘The costs of goods produced by factories rose again, with metals and machinery showing a notable price rise.

‘Road freight costs for UK businesses also continued to rise across the summer.’

Average petrol prices stood at 134.9 pence per litre in September 2021, compared with 113.3 pence per litre a year earlier, as fuel provided an upward pressure on inflation, the ONS said.

Suren Thiru, Head of Economics at the British Chambers of Commerce, said: ‘September’s dip in inflation reflects temporary data distortions rather than the reality on the ground.

‘The slowdown was largely due to strong base effects caused by dining out costing less last month in comparison with September 2020, when prices increased following the end of the Eat Out to Help Out scheme.

‘A renewed inflationary surge is expected in the coming months with the increase in the energy price cap, partial reversal of the VAT reductions for hospitality & tourism and persistent supply chain disruption. This is likely to push inflation above 4% by the end of 2021.’

MPs were told at a hearing yesterday that an average litre of unleaded petrol is now 139.46p – the most expensive since March 2013 and less than 3p below the all-time high of 142.17p set in April 2012.

Prices have risen by more than 26p per litre – nearly 23 per cent – in the past 12 months, adding £14 to the cost of filling up a typical 55-litre family car.

Similar rises may be spreading across the economy, with industry chiefs yesterday warning MPs about the soaring cost of eating out, supermarket bills and manufactured goods.

The resulting cost-of-living squeeze is set to undermine Prime Minister Boris Johnson’s ‘levelling up’ agenda.

Cafe, restaurant and pub prices are rising at 14-18 per cent a year with the same to follow in supermarkets, according to the Food and Drink Federation.

Manufacturers and heavy industries are suffering a rise of 30 to 40 per cent in material prices along with a double-whammy of rising energy and shipping costs, according to the manufacturers’ organisation Make UK. The cost of transporting one container from the Far East has leapt from £1,100 in December last year to £14,500 today and air freight costs have risen ten-fold.

Road haulage bosses are warning that driver shortages are not improving and say that a Government visa scheme to let in more foreign drivers has totally failed, with only 20 applications.

Food and Drink Federation chief executive Ian Wright warned ministers to ‘think seriously’ about the inflation caused by supply-chain disruption. He told MPs on the business committee: ‘In hospitality, which is a precursor of retail, inflation is running between 14 per cent and 18 per cent. That is terrifying.

‘I remember inflation going to 27 per cent under the Callaghan government and I remember the lady going around Sainsbury’s twice in the same hour to change the prices.

‘We really cannot go back to that. It took us 15 years to recover.

‘Inflation is a bigger scourge than almost anything because it discriminates against the poor.’

He added: ‘We are not going to run out of food but there are some shortages, we have seen some problems with pigs and poultry.’

Duncan Buchanan, director of policy at the Road Haulage Association, told MPs: ‘There are widespread shortages of lorry drivers, leading to delays and frustrated trips… this hasn’t eased at all.’

And Make UK chief executive Stephen Phipson said: ‘We are seeing 30 to 40 per cent increases in material costs.’ Companies were having to pass on the cost, ‘which does imply to us that inflation is more or less baked in,’ he said.

He warned that huge increases in shipping and air freight costs were ‘not sustainable’, yet industry leaders expected their supply chains to be disrupted for another six to nine months.

The Government has said it is industry’s job to ensure effective supply chains and to offer pay and conditions generous enough to attract British workers.