In the opening of Charles Dickens’s A Christmas Carol, readers are introduced to Ebenezer Scrooge when two men arrive at his office to ask for charity. True to character, Scrooge offers no money.
His name has become synonymous with penny-pinching. Yet arguably Ebenezer Scrooge is misunderstood. As Dickens made clear, he may seem heartless but old Ebenezer was a product of his time.
For in December 1843, the year the book was written, Britain was suffering severe deflation. The price of goods had been falling for the previous four years, increasing the real value of debt and inducing recession. Scrooge’s fear of “the Ghost of Christmas Yet to Come” was a parable for widespread anxiety about the future of the economy. Scrooge was “tight-fisted” not simply out of miserliness, but as a precaution in case his business took a turn for the worse.
Fast forward and many business leaders are feeling similarly apprehensive about the economy, albeit for the opposite reason. This time the worry is inflation.
The latest Office for National Statistics figures revealed that the cost of living rose by 4.2 per cent year-on-year in October, more than twice the Bank of England’s 2 per cent target. Half of that jump came from Ofgem’s October increase to the energy price cap in response to Britain suffering a shortage of fuel. The global price of oil and coal has more than doubled this year and British manufacturers are especially vulnerable to the rising price of gas. The cost of freight shipping has increased almost tenfold. Busy trade ports are suffering serious congestion while we have a tightening labour market.
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The pressures caused by energy price rises, labour shortages and supply chain disruptions will take months to ease and manufacturers are passing the costs to customers.
This means shoppers face the biggest price increases in more than 30 years this Christmas, with widespread shortages of raw materials and computer chips continuing to cause bottlenecks throughout the supply chain. Retail sales rose for the first time in six months in October as consumers started to buy their Christmas presents early before the pressure intensifies on household budgets.
The Bank of England has consequently indicated that the conditions exist for it to increase interest rates later this year or early next. However, this week’s decision is likely to be more finely balanced than it looked a few weeks ago when an increase in December for the first time since the Bank was given independence seemed nailed on.
So, mirroring Dickens’s allegory, the performance of the manufacturing sector has been forewarned of a portentous economic future. The news of the Omicron coronavirus variant is a reminder that just as for Scrooge’s firm, future plans can have unexpected changes. Manufacturers will hope that as with Scrooge, this Christmas marks the start of a happier future.
Stephen Phipson is chief executive of Make UK
