The chancellor is brimming with positivity, writes Lovewell Blake partner James Shipp, but is inflation set to wipe the smile from his face?

For all the positive measures announced in the Budget, for business there is a shadow cast over everything: the very real danger that the economy could be about to enter a phase of high inflation.

Few would argue with the government’s aspiration for Britain to be a high wage, high skill economy, but without real measures to improve our lackluster record on productivity, the reality is that higher wages will simply mean higher prices.

Loading extra costs on to business can only result in inflationary pressure, and a reduced ability to invest for the future.

Long before yesterday’s Budget, the chancellor had already hit business with a series of cost-pressure announcements, ranging from the increase in employer National Insurance contributions from next April, to a significant hike in Corporation Tax rates the following year.

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The Budget announcement of a 6.6pc rise in the National Living Wage will have a disproportionate impact on sectors where many are working at that level – for our region in particular, that includes agriculture, tourism and hospitality.

A one year halving of business rates for the latter sector is welcome, but it won’t compensate for a long-term increase in staff costs.

There can only be one result: higher prices for the consumer.

For businesses, such a big increase in the minimum wage will inevitably have a knock-on effect throughout the wage structure; you can’t simply increase pay at the bottom without adjusting throughout the pay scale.

Rishi Sunak’s acknowledgement that inflation is headed for 4pc next year is bad news for everybody, not least those on the National Living Wage, who will see a big proportion of that 6.6pc increase disappear in real terms, even before measures such as increased employee NI contributions.

Inflationary pressure is the elephant in the room which colours every announcement made in yesterday’s Budget.

For all the welcome extra spending and investment, high inflation levels will hold back the economy, stifle business growth, reduce investment (especially if higher inflation leads to increased interest rates), and frustrate the aspiration to lift incomes in real terms.