Dealing with oncoming shocks – Is this a Dagger I see before me?

There can’t be too many days in the typical British person’s lifetime when they wake up to find – as we did last week – that the International Monetary Fund has issued a “See Me!” to the UK government.  But that’s exactly what just happened following new Prime Minister Liz Truss’s first Budget (or Fiscal Statement to give it its proper name).

When that’s followed later in the same day by the Bank of England having to act to avoid a pension market crisis it’s clear that something is awry.   Suffice to say that the Fiscal Statement has not been well received – the new PM and her Chancellor have earned the nickname of ‘Daggers’ amongst traders in the city (derived from Dagenham, which is two stops beyond Barking).

The cost of living is now top of everyone’s mind.  Fear of being able to heat homes is fast being compounded by worries over cost of keeping homes as interest rates are forecast to rise to levels not seen since the 1980s and 90s.

We talked about energy prices and inflation and discussed measures that firms could take earlier in the year – but it’s clear that this is no longer a short-term blip.  There are further shocks on the horizon as various factors combine:

• Increased energy costs will lead to increased prices for input materials and components and work their way up the supply chain
• Increased living costs will create wage pressures – something we can already see in heavily unionised industries.   Rail Workers, dockers and now postal workers are already taking strike action. 
• A strong Dollar and weakened Sterling makes imported goods and materials more expensive

Compound economic pressures will force other issues into the light.  With energy demand outstripping supply across Europe, there is a drive for energy independence – what does this mean for COP26 commitments to carbon neutrality.  If material costs are rising and sustainability / social responsibility carries a premium, will we stay true to our values?

Clearly the political landscape for the next 2 years at least is going be ‘lively’, with battle lines already being drawn as ‘low taxes for growth’ vs ‘support for the many’.   As citizens, consumers and employees we can be equally partisan and demanding of the organisations we work for and do business with – we hold them to account and expect them to behave in line with our own values.   If they don’t, we vote with our feet.  Any business overlooking its clients and employees when taking financial decisions is merely shifting its risk of a nasty shock to another source.

The prospect of ongoing turbulence raises serious questions. Tough times make for difficult choices – do we compromise on our passion and purpose – a topic we discuss in What Value our Values? Should we consider a change of direction or approach – we revisit this theme in Batten Down Hatches, Sail for New Waters or Run For The Hills?

If the last two years weren’t enough, ‘interesting’ times are here to stay.   Enlightened businesses and leaders need to not only stay abreast of emerging challenges – they need to quickly assimilate their likely impact.  Knowing the economics of ours (and our customers’ and suppliers’) business will be essential to adapting to whatever comes next.   Being clear on our purpose and values and making these core to decision-making will be just as important to maintain the trust and commitment of customers and employees.