The latest CPI figures offer a glimmer of hope that the UK is starting to show some signs of recovery, with inflation dipping below double digits for the first time since October last year. However, with inflation still running at 8.7%, a smaller fall than expected, affordability challenges are far from over. Grocery prices remain at sky-high levels, now approximately 17% higher than they were a year ago, and while energy prices are starting to fall, the energy price cap is set to remain more than £1,000 higher than the pre-pandemic average. Prices of everyday essentials continuing to remain at record levels is putting further strain on consumers and businesses across the country.
Squeeze on Personal Finances
Mortgage borrowers are perhaps being hit the hardest by the inflationary pressures and rising interest rates, with the Bank of England base level now at its highest level in 15 years. According to the FCA, an estimated 356,000 mortgage borrowers could face difficulties with repayments by July next year. However, with more customers due to come to the end of their fixed rate deals in the coming months, this figure could end up being much higher; research from the Resolution Foundation found that people moving onto new fixed-rate deals over the next year can expect their annual mortgage costs to rise by over £2,000.
However, it’s not all doom and gloom. Rate rises can be good news for savers, who will earn bigger returns on their cash. In recent months, we’ve seen top saving rates reach the 4% mark, as banks and building societies attempt to lure in customers. Similarly, for those approaching and in retirement, the outlook for annuities is rosy, with incomes at a level we haven’t seen in over a decade.
Small Business, Big Impact
Businesses are struggling to adapt to the consequences of inflation and being squeezed with higher borrowing costs. This has been complicated further by global supply chain disruptions, the ongoing impact of the pandemic and more recently the Ukraine War. Small businesses in particular are feeling the pinch. While raising their own costs may seem like the obvious solution, for small businesses, consistency is key to driving brand loyalty. Even a slight price increase can have a major impact on their customer base and so communication in these instances is key.
The Importance of Customer Communication and Engagement
For small businesses, customer service will be key. Communicating the rationale behind price increases, as well as providing customers with as much prior notice as possible will be crucial to building trust and maintaining customer loyalty. This level of communication can help deepen the customer relationship and demonstrate that the business is doing all they can to support its customers.
In an inflationary environment where uncertainty has become the new norm, finance providers must, above all, ensure their communication is regular and transparent. This will help provide customers with all of the information they need to make well-informed decisions. A recent example of this is the latest mortgage guidance from the FCA, which sets out the ways mortgage lenders can help customers worried about or struggling with their mortgage payments. In addition, simple steps such as creating toolkits, calculators, and proactively communicating with customers on how rate changes could impact them will go a long way.
It’s important for businesses to consider the use of different strategies and channels to target various demographics. Understanding how to blend Paid, Owned, and Earned media channels to build a comprehensive strategy and reach your target audience will be crucial to a brand’s success. It’s equally important, however, to think about how different audiences like to engage, whether that be on TikTok, Twitter, Facebook or LinkedIn.
Now more than ever, there’s a huge opportunity for brands to create and foster communities to help customers feel connected. And, while inflation concerns may be slowly abating, affordability concerns are still front of mind. Businesses should therefore put their customers at the heart of the decision-making and use authentic communication and action to demonstrate they understand and care.