Just like a remake of a movie that no one asked for, we might be on the cusp of another rise in inflation. Our industry, along with the rest of the country has only just gotten over that last inflation crisis, spawned from the COVID-induced measures around the world.
Now, as energy prices go up and the reality of budget measures begins to sink in, we are likely looking at another round of inflation.
Biggest two-year jump
Inflation figures released today made for ugly reading. It rose from 1.7% in September to 2.3% in October – a 0.6% increase and the steepest in two years. This was mainly down to energy prices and the cap being lifted in October.
Energy costs affect everyone, from individuals to small businesses to large businesses and in all sectors. It is a cost that trickles down into all products and was one of the main reasons why inflation spiked so high not so long ago.
The energy price cap is due to rise further in January, which again will have an inflationary effect. But it’s not just energy costs that we have to be keeping an eye on. The recent Budget measures on National Insurance, business rates and the National Minimum Wage are going to play a role in 2025.
Many of you will have seen the pretty severe backlash from the business community, SMEs and large businesses, over the past few weeks. The Chancellor has been warned that rather than growing the economy, her measures are going to prevent companies from hiring, with job losses expected, roles being moved abroad and higher costs in the billions having to be passed down to the consumer. Not exactly a recipe for growth. Indeed, the ingredients for more inflation.
For businesses in our supply chain, every company is going to be hit twice. Once by price increases by their suppliers, and then again by their own rising costs. For example, we have already had one supplier email saying that from February next year, they will be implementing a circa 6% increase due to their own costs increasing from their suppliers and costs at their own business. Now remember that 6% has to be passed down to installers, who themselves will face rising costs due to the measures mentioned above.
Installers will not be able to absorb that and will therefore have to pass that down to the consumer. In the end, consumers could end up paying a good chunk more for their new windows and doors by the Spring of next year, not long after huge increases caused by the last inflation spike just a couple of years ago.
Rough Q1 & Q2
As I am writing this, there are rumours abound about a number of companies in difficulty. A theme of turmoil that has run throughout the year, last comparable to the years of the financial crisis. But with a slow pre-Christmas period, and the traditionally quiet first quarter of a new year coming up, the next few months look particularly hazardous.
Economists are looking at inflation rising to around 3% next year. That’s an average estimate. We got average estimates last time around and look how they turned out. The full effects of rising inflation will be felt gradually through Q1 and Q2 as a combination of rising energy costs at the start of the year and Budget measures kicking in in the new financial year in Q2 become felt in the economy. 3%, although not far over the BoE’s target of 2%, feels underdone.
What rising inflation will also do is reduce any further chances of interest rate cuts. It had been predicted that there might have been room for one more cut this year. That’s about as likely as Santa walking through your front door on Christmas Eve. And if inflation does continue to rise in the first half of next year, the central bank will remain on the cautious side. As a result, mortgages for those having to renew next year will go up significantly, removing spendable money from people’s pockets, and continuing to put strain on the cost of living for many.
So what can our sector do? As we have seen this year, the part of the market that has been hit hardest is the volume-based businesses. Those who rely on the people who have been hit hardest by inflation, the cost of living, mortgage increases etc. If you are an installer or fabricator that is not aimed at the new-build sector, then you’re going to have to seriously pivot to the higher end of the market. Some are already. I have seen a good number of installers and fabricators add timber and aluminium products to their portfolios to attempt to attract the wealthier bracket of people. But we’re going to need to double down on that next year.
One stat I once read that has stuck with me is that the top 20% of earners in the UK fund around 80% of all home improvement work. That’s quite a meaty chunk of potential to aim at. It is not easy transforming your business that aimed at one part of the market to suddenly aim at another area. But if we don’t, then we’re going to find the next couple of quarters very difficult indeed.
The aluminium and timber markets present good opportunities for growth, especially for installers. That is where it’s worth looking at in 2025.
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