New figures show UK inflation fell slightly in December, down to 2.5% from 2.6% in November. While the drop is small, it has sparked speculation about possible interest rate cuts by the Bank of England when they meet on 6 February.

At the same time, rising payroll costs in April could push inflation back up, making it essential for businesses to plan ahead. Here’s what you need to know.

Will interest rates go down?

If you have a business loan or are planning to borrow, lower interest rates could reduce your costs and improve cash flow. Even if rates don’t change in February, financial market confidence could work in your favour.

However, the Bank of England is being cautious. Inflation is still above their 2% target, so any cuts are uncertain. Businesses should plan for multiple scenarios and seek financial advice where needed.

Cost Pressures are Rising in April

Even with falling inflation, costs will keep increasing in 2025, particularly due to wage changes:

• National Minimum & Living Wage increases: These will significantly impact payroll, especially in hospitality, retail and care sectors.
• Employer National Insurance Contributions (NICs): Higher rates and a lower threshold will add to business costs.
• Profit margins under pressure: If your business is already running on tight margins, these increases could make things tougher.

Now is the time to review your pricing, cut unnecessary costs, and improve efficiency to stay competitive.

Key areas to focus on:

• Cash flow management: Keep track of your finances to ensure you can meet commitments and invest in growth.
• Pricing strategy: Consider price adjustments carefully to balance cost pressures without losing customers.
• Efficiency improvements: Automating tasks and streamlining operations can help reduce expenses.
• Workforce planning: Assess staffing levels and the impact of wage increases to manage costs effectively.

Plan Ahead to Stay Competitive

A drop in inflation is good news, but businesses can’t afford to be complacent. With wage increases and higher employer costs on the way, proactive planning is essential.

If you need support with cash flow forecasting, cost management, wage planning, or tax advice, get in touch – we’re here to help.