Whilst the UK government is on course for economic recovery after inflation dropped to 2% this week, businesses are both optimistic and concerned regarding the short-term future. 

The government hit the Bank of England’s long-term inflation target of 2%, but the central bank is expected to hold interest rates at 5.25% for the seventh consecutive time, not budging from the 16-year high. 

In other areas, inflation dropped from 3.9% to 3.5% for the goods sector, excluding prices for fuel, alcohol, etc. Meanwhile, inflation in the services sector also dropped from 5.9% to 5.7% as the UK continues to battle various global factors. 

However, food prices continue to be 25% higher than that of early 2022 before the onset of the global economic decline. Petrol also remains high too and is thought to be rising in the coming months. 

Despite some lingering doubts, Khalid Talukder, Co-Founder of DKK Partners, has welcomed the drop in inflation as a sign that it will enable UK businesses to expand across new markets and focus on payment innovation. 

He said: “Sky-high inflation has caused a major headache for businesses over the past few years, undermining confidence in the economy and limiting investment. Now that inflation is back at the target level, the challenge for the incoming government and Bank of England is to keep it there.

“If they are able to do that, business confidence will soar, promoting innovation and investment across the economy and helping business leaders to make long-term decisions such as international expansion into new emerging markets, which will in-turn foster international colLaboration and further boost economic growth.”

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With the upcoming UK general election set for 4 July, the Conservatives will view the inflation drop as success and evidence that its “difficult decisions” are paying off. 

The Party will also use this to outline its plans to keep the rate stable as the Party has ambitions to continue in bolstering the country’s fintech scene and AI development. 

Some business figureheads, however, are remaining cautious over the inflation rate as well as current high interest rates, with Sanjay Raja, Chief UK Economist for Deutsche Bank, raising concerns over the ‘stickiness’ of services inflation. 

He shared: “While calls for an imminent rate cut will grow, given headline CPI’s descent to 2%, there’s likely to be growing concerns around the stickiness surrounding services inflation.”

As mentioned previously, AI development is being widely viewed as the next great tech innovation, with funding soaring in the sector. Both the Conservative and Labour have placed heavy emphasis on AI in their manifestos as it being the next key growth driver for the economy.

Whilst Labour remains “acute” over the current inflation rate, the 2% rate for the time being enables businesses in the payments and fintech sectors to broaden their horizons to new possibilities. 

Fintech funding took a harsh nosedive during 2022 amidst the global financial downturn, and was still recovering from the effects last year. With new innovations now coming to the forefront in 2024, Derek Mackeznie, CEO of Investigo, believes moving away from the restrictions of high inflation now affords companies to map out plans for further digital transformation. 

He stated: “It’s not been an easy time for business over the past few years, navigating a turbulent market restricted by high inflation. 

“Concerns over the economy have had a significant impact on businesses, limiting spending and resulting in cuts in key areas such as technology, which has prevented growth. In fact, half of boardroom leaders admitted to slashing their tech budgets over the past year alone, according to our Tech and the Boardroom research.

“Now that inflation is back on target, it is essential for the boardroom to invest in technology to drive digital transformation, boost efficiency and fuel growth. Tech development is so fast-moving, as seen by the rise of AI, and the boardroom can’t afford to wait, otherwise they risk being left behind.”