The recent jump in the UK’s Consumer Prices Index (CPI) to 3.0% in January 2025, up from 2.5% in December 2024, marks the highest inflation rate in ten months and has taken many people by surprise – not least those in Westminster and Stormont.

The rise, driven mainly by increased costs in fuel and food poses significant challenges for everyone in Northern Ireland. For households the inflation uptick translates to higher spending and less disposable income. Feeding the family is now nearly 4% more expensive than this time last year. Petrol and diesel prices have also been rising steadily again putting pressure on pockets.

Families tighten the purse strings

When spending power is reduced, we often see an economic slowdown as families prioritise essentials. The impact on businesses who rely on families having a few more quid in the pocket can be akin to death by a thousand cuts. Over time, one less takeaway, one less day trip, one less family treat, eventually take their toll on the retail, hospitality, entertainment and tourism sectors. Simply put, when families tighten the purse strings no one wins, and the impact can take years to reverse.

Impact on businesses

Rising inflation puts owner-managed businesses in Northern Ireland under pressure. Increased operational costs, especially in energy and raw materials, squeeze margins. All on top of increased National Insurance Contributions (NICs) and of course the incoming rise in minimum wage. Imagine you are in the hospitality industry? 2025 is shaping up to be a year of increased costs and less customers. Perhaps you are in the food industry? Same again. Across the board it is more expensive raw materials and a nearly guaranteed reduction in margin, unless you pass on the price increases to the customer whom we already know has less money to spend. Doesn’t sound good, does it?

What can Labour do about it?

Do you remember when it was first announced that the famous sporting institution Barcelona FC was in significant debt? Club President Juan La Porta played the situation down and talked of ‘financial levers’ that would alleviate the situation. Don’t be surprised if we hear the same from Rachel Reeves. In truth the only lever she has at her disposal is to keep the Bank of England onside and try to control interest rates. And even now it’s beginning to look like a rates freeze is much more likely that any further cuts. It was only earlier this month that the Bank reduced the rate to 4.5%, aiming to stimulate economic activity.

This hasn’t worked as yet which now puts pressure on the Spring Budget. An increased tax burden on businesses is already incoming from April, so surely she can’t heap more financial pressure on the businesses forecasting a challenging year ahead. She may think that adjusting taxation and public spending can help control inflation. More tax increases will further reduce disposable income and curb spending, ultimately stagnating economic growth. Conversely, tax cuts can stimulate spending, but they risk exacerbating inflation and deficits.

We all know tax cuts are not normally associated with Labour’s playbook. Reeves knows striking the right balance at the end of March will be crucial if she is to salvage any confidence from the business community. Expect to seem some tightening of spending and some small tax rises.

It’s a tightrope all right. Watch this space.