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Automotive sector braced for record interest rates rise

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The automotive sector is braced for the impact of a record 0.75ppt rise in interest rates if the Bank of England acts to curb inflation next week.

Office for National Statistics (ONS) data that showed UK inflation declined slightly to 9.9% last month have been followed by suggestions that the BoE could press ahead with its biggest increase ever next week.

But there have been warnings that such steps, which would increase the cost of motor finance borrowing a time when car prices are already at record highs due to supply shortages, could slow the economy to such a degree that the UK ends 2022 in a state of deflation.

Speaking to the Guardian newspaper Mazars chief economist at the accountant George Lagarias said: “If consumers remain sufficiently conservative with their discretionary expenses and the economy slows down as predicted, by the end of 2023 we could even be talking about deflation rather than inflation.”

Data published by YouGov and the Centre for Economics and Business Research showed that confidence among UK consumers fell into negative territory for the first time since June 2020 during August.

Any rise in inflation is likely to compound a trend in the Consumer Confidence Index, which declined 4.2 points, from 103.0 to 98.8, last month.

The survey was taken prior to new Prime Minister Liz Truss’s plan to freeze household energy bills at £2,500 a year for two years, however.

ONS data showed that, despite efforts by businesses to raise wages to ease the impact of the cost-of-living crisis for their staff, increases were not keeping pace with soaring inflation.

In July, wages growth increased to 5.2% from 4.7% in June.

MHA employment tax director Nigel Morris has advised car retail businesses to "flex" staff bonuses and salary sacrifice schemes to mitigate against the impact of the cost-of-living crisis.

Burrows Motor Group managing director Steve Burrows is among the car retail sector business leaders who have stepped-in with one off payments to ease the burden on staff, however.

His business revealed last week that all staff would receive a £250 one-off payment.

AM reported earlier this week, however, that Lookers is carefully assessing ways in which it can help its employees following a recent overhaul of its terms of employment.

Chief people officer Chris Whitaker said: “With inflation at the levels that we are seeing it is hard to know what you can do as an employer beyond a certain point.”

He added: “The biggest commitment we can make is that of maintaining a sustainable business.”

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