INFLATION

Inflation, says King, “is undoubtedly the problem”. And despite recent better-than-expected figures, King believes businesses should be wary of assuming the pressure on prices is over, even if the peak now looks a little flatter than it might have done.

He argues that April’s lower inflation figure was largely driven by technical changes to green levies rather than a genuine reduction in underlying costs. Employers continue to pass rising labour costs on to consumers and fuel bills are now leaping upwards again, with a 13% increase in the energy price cap this month, thanks largely to the effective closure of the Strait of Hormuz.

That on-off blockage is also pushing up the cost of fertiliser, placing enormous pressure on farmers and food producers to raise their prices. “Food price inflation is coming down the line in a big way,” says King, along with the price of carbon dioxide, used in slaughterhouses and to push beer through the pumps.

Any winners? Not many. But he does say: “The pub trade may get lucky… particularly if England do well in the World Cup.”

UKRAINE

While attention has shifted to Iran, King argues the invasion of Ukraine was a key catalyst for the recent inflation shock – with the knock-on effects still being felt across supply chains and consumer prices. “It’s where all of our recent economic pain started… the reason food prices are up 30% since 2022.”

And for businesses, Ukraine is an ongoing source of volatility, continuing to shape global commodity markets, energy flows and defence spending. “This conflict has now been going on longer than the First World War,” he says.

While Russia is potentially making billions from the sale of crude oil, “Putin is also running losses at monumental levels,” says King. “He’s coming up against other capacity constraints, such as his ability to source metal to build more tanks. Metal prices are very, very high at the moment. And he still needs to recruit soldiers. He could reintroduce conscription, but apparently there are not many young men around, because they just want to get out of Russia. But there’s no willingness for peace. And at some point, somebody in Moscow will have to say, ‘Hang on, why are we still doing this?’”

If a peace agreement is eventually brokered, King argues the economic consequences will be complex. He doubts Russia “would have much appetite to pay war reparations” – and history suggests there would be risks in trying to enforce them. After the First World War, the reparations imposed on Germany at the Treaty of Versailles contributed to deep economic and political instability, which ultimately led to the rise of Hitler. “So, you’ve got to be careful how you handle all this stuff.”

There’s also “an enormous reconstruction job” to be done – housing, roads, power stations and wider infrastructure will all need to be rebuilt. That could well create opportunities for UK and international businesses.

TALENT

Despite firms being forced to distinguish between areas where skills are genuinely critical and those where headcount can be reduced, King argues that “competition for talent is going to remain very, very intense”. This will be strongest at the skilled end – particularly in areas such as AI and technology, where specialist skills command a significant premium.

Other segments, such as unskilled labour, will also incur more pressures, particularly where wage inflation has already been driven by rises to the minimum wage. “That’s where you’re going to be looking to save costs,” says King. “The biggest problem with the UK is that our productivity hasn’t really recovered from the global financial crisis.”

Added to that, the number of new skills now needed are legion compared with even 10 years ago. But again, he says, “AI can help with that. That’s something to watch.”

UK POLITICS

Companies cannot afford to be distracted by political turbulence in Westminster, says King. “Life has to go on. If you’re a widget manufacturer, you have to carry on trying to sell widgets, regardless of who’s in Number 10 Downing Street.”

Despite the upcoming change of leadership, King believes the next Prime Minister’s room for manoeuvre is limited. “Andy Burnham is promising a different approach from Keir Starmer but the fiscal arithmetic remains unchanged and incredibly uncompromising.”

Speculation about equalising the rate of capital gains tax – currently 18% for basic rate payers and 24% for those on the higher or additional rate – with income tax “will have a deterrent effect on entrepreneurs and wealth creators”, says King.

All of which is beyond the influence of finance leaders. What they can control, however, is how they prepare for the consequences of policy change – particularly around taxation, employment costs, regulation and consumer confidence.

TRADE

King argues that while businesses are always searching for growth opportunities overseas, the scale of recent trade deals should be kept in perspective. The UK’s agreement with the Gulf Cooperation Council, for example, “is only worth about 0.1% of UK GDP”. Meanwhile, post-Brexit trade deals, such as those with Australia, have only a limited economic impact: “It’s proximity to your trading partners that matters.”

Looking ahead, he notes the UK is now pursuing closer regulatory alignment with the EU in areas such as food, drink and veterinary standards, which could offer modest benefits for exporters: “You want to get rid of some of the friction that’s been allowed to build up. So potentially, if you get that over the line, that’s quite helpful.”

Nevertheless, he argues, the UK has lost its previously advantageous position of EU membership without eurozone participation – a status now effectively held by countries such as Poland, which has benefited from manufacturing relocation and competitive labour costs. Rejoining the EU, he suggests, would not restore the previous terms, with key opt-outs and financial advantages unlikely to return. “Rejoining is not a magic bullet.”