Inflation and Energy Price Effects On Commercial Properties

Posted on 21 November, 2011 by MOVEHUT

The news that UK inflation has fallen slightly offers little comfort for commercial property owners. The Consumer Price Index (CPI) shows that inflation fell from 5.2 per cent to 5.0 per cent in October. Despite this drop, however, it remains well above the government’s target of two per cent.

The Retail Prices Index (RPI) which includes mortgage repayments also fell from 5.6 per cent to 5.4 per cent but the government recognises that inflation remains high and these are difficult times for both households and businesses.

Unfavourable conditions in the global oil and gas markets are also having an impact on commercial properties as these cause upward pressure on energy costs. With the major suppliers likely to increase their prices again over the coming winter this will be another burden on businesses.

Mervyn King, the governor for the Bank of England, has been forced to write to the Chancellor of the Exchequer, George Osborne to explain why inflation is above the government target. “The current high level of inflation reflects the increase in the standard rate of VAT earlier in the year and the previous steep increases in import and energy prices” said Mr King. However he insists that without this, inflation would be well below the government target.

The British Chamber of Commerce (BCC) argues that commercial properties have themselves had a role to play in the fall of inflation through supermarket price wars, as these tumbling prices were themselves a reflection of the worsening economy. “This confirms that weak consumer demand is forcing some businesses to reduce their margins” said economist David Keen and the situation is not likely to improve greatly in the near future.

However with a further fall expected in November’s figures and with Christmas rapidly approaching, many commercial properties will be hoping that consumer confidence increases soon. Many businesses are also hoping that we do not experience the kind of weather that the UK received last winter, which was to blame for an unexpected fall in Christmas sales.

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