Is Inflation Coming, And Which Businesses Are Immune To It

Is Inflation Coming, And Which Businesses Are Immune To It


Let us start this article by quoting some headline figures on Inflation that are sure to arrest your attention.

According to the Federal Reserve, the inflation rate in the United Kingdom has climbed to a staggering 5.1%. To put that into perspective, this is the highest it has ever been in the last decade!

The surprising bit is that the Bank of England had forecasted this figure to come roughly around April 2022. This has put economists and other pundits in a bind.

Over the past year, the Consumer Price Index (CPI) of over 700 items, which includes necessities like food, energy costs, clothing, and transportation, has risen drastically.

While moderate to average levels of inflation are sound, drastic increases spell a lot of trouble for salaried individuals. In simple terms, their salaries will not be able to last them as they did before the higher inflation struck.

In this article, we are going to look at some of the probable causes of inflation in the UK. Additionally, we will try to address an important question that is on the minds of many- are there businesses that are immune to the inflation problem?

Factors Contributing to Rising Levels of Inflation in the United Kingdom

In this section, we are going to look at three major factors that have contributed to the soaring prices of essential goods and commodities in the UK. These factors have directly or indirectly contributed to the rising inflation rates-

  1. High Energy Costs-

According to experts, the average fuel costs in the UK have risen by over 3% on a year-on-year basis. The problems in OPEC concerning limited production, as well as the disruption of supply and logistics because of the pandemic has seen energy costs rise.

An increase in the prices of fossil fuels like coal that contribute to thermal power plants has also seen home and commercial electricity bills rise. Higher energy costs affect almost all aspects of the cost of living. This problem is expected to get aggravated in the coming months in the UK.

  1. COVID-19 Pandemic-

The UK has been one of the worst affected countries ever since the pandemic struck. The virus exposed the chinks in the armor of the NHS and saw many lose their lives. Currently, the UK is grappling with increasing cases of the Omicron variant.

In other words, economists point out that the economy did not have any time to recover after the 1st and 2nd, Delta variants hit. As soon as the economy starts picking pace, a new variant seizes and puts stop to the growth and development. With Omicron posing a major threat once again, this problem is far from over.

  1. Brexit-

While the above two factors are problems that have affected nearly all major economies, Brexit poses a unique challenge to the UK. There has been growing discontent about the decision and the current economic and financial conditions are testament to Brexit not being able to deliver on the proposed promises.

While politicians continue blaming the pandemic, there is more than one factor at work. The major one is the growing uncertainty about the UK’s future in line with that of the EU countries. The next few months will be crucial in this regard.

Additionally, the break up of supply chain and logistics has meant that prices of normal and essential goods and commodities have taken a further hit.

Businesses that are Immune to Inflation Worries: An Analysis by Experts

Every time the world is hit by an inflation cycle, there are some businesses that are able to capitalize and grow. In this section, we are going to look at some inflation immune businesses that are not only going to weather the storm, but also grow and develop.

  • Financial Services and Fintech Companies-

Financial services as a business niche are expected to grow incrementally during the pandemic.

This is because, professionals as well as other businesses that send and receive money from abroad are likely to start using services that handle money to save on conversion costs, hidden commissions, and faster turnaround times.

Money management is going to become important as everyone will try to offset the falling GBP by using the most efficient money transfer services. Fintech companies in the UK are seeing record growth levels.

  • Real Estate and Mortgage Companies-

It has been proven historically that when inflation rises, people look to invest their cash into assets that are expected to rise in value.

They do this with the hope that the increase in the value of an asset will be able to compensate for the loss of value on their cash. Real estate and mortgages have always enjoyed fair weather in high inflation cycles.

The same is repeating itself with UK property prices soaring as more and more people look to take their money from banks and invest it in properties. This trend is going to pick up in the next year as well.

  • Commodities and Stocks-

Investing in companies that are raw material producers (right at the source) can help you grow your investment.

For example, while the prices of copper wires might continue to hurt a dealer or store which deals with hardware, the mining company that takes copper out of mines is expected to see its shares soar in value.

Oil and other commodities are expected to rise, and this should be enough to compensate for the falling cash value. Most financial experts and economists agree that investing in commodities can be a great option during inflation cycles.

The Growth in Financial Services during High Inflation

Ever since the financial services sector has integrated itself with technology and digitization, it has seen record growth. With the world being increasingly globalized, businesses and professionals have more need to send and receive money from different parts of the world.

They require this, but with certain caveats. Traditional banks and lending institutions have been unable to address the concerns of individuals looking at effective money management.

Increasing red tape, unnecessary delays, and higher costs have forced individuals and businesses to turn to new-age money transfer services. Young start-ups in the field have been able to grow drastically in both user bases, as well as in terms of valuation.

The following are some major reasons why they have been able to occupy the space of traditional banks and lenders-

  1. Lower rates of currency conversion, zero hidden commissions, and complete transparency. Some money transfer services use transparency as their USP
  2. Faster turnaround times lead to instant crediting and debiting of the money, thereby helping with cash flow.
  3. Features for tracking the flow of funds from one part of the world to another. This helps in assessing the correct time frame and limits credit risks.
  4. Easy integration with digital smartphones and app technology to boost convenience and cut down on unnecessary paperwork.

The Final Word

The United Kingdom is in the middle of what might be its worst inflation cycle. Everyone is looking up to the Bank of England to see whether they are able to provide some respite in terms of cutting rates. With consumers being the worst sufferers, only time and strategic planning will be able to help the UK come out from this mess.