ICAEW.com works better with JavaScript enabled.

Financial services: managing in an inflationary environment

Author: ICAEW Insights

Published: 02 Aug 2022

With inflation at a 40-year high, financial services must deploy immediate measures to protect itself and clients from the fallout, according to leaders in the field.

Inflation has hit 9.4%, triggering higher interest rates and the expectation of knock-on effects, from greater regulatory scrutiny of financial institutions over customer dealings to increased client defaults.

The message coming from the sector to ICAEW is that stress testing by accountants for a higher interest rate and inflation environment must now form part of essential client budget and resilience planning.

Hugh Fairclough, partner at RSM UK, said: “Accountants should advise clients on re-budgeting for any reduction in revenue or increases in supplier costs. Businesses should be consistently revisiting their budgets and pricing decisions, and assessing credit risks among their clients and customers.”

Finance providers may also need to consider whether their clients can extend repayment terms or agree repayment holidays during any pinch points in these forecasts, he said.

Financial institutions that do not adapt sympathetically to the higher inflation environment may fall foul of the regulator.

The Financial Conduct Authority recently told more than 3,500 lenders they need to provide customers in vulnerable circumstances with more support as the rising cost of living threatens to tip millions into financial difficulty.

Catherine Brittain, Partner at RSM UK said: “The regulator will expect firms to adapt their forbearance practices and debt help for customers who can’t afford repayments.”

She compared this to the onset of COVID-19 – customers might be offered repayment holidays or extensions to their credit agreements to help manage their cash flow.

You can read more about this from the Financial Services Faculty: How to manage in an inflationary environment

ICAEW Know-How from the Financial Services Faculty

This guidance is created by the Financial Services Faculty & recognised internationally as a leading source of expertise and know-how on banking, insurance and investment management issues. Join the Faculty to gain digital access to practical guidance, expert analysis and professional development support across the financial services industry.

Recommended content

Podcast
Podcast icon
Insights Podcast

Hear a panel of guests dissect the latest headlines and provide expert analysis on the top stories from across the world of business, finance and accountancy.

Find out more
Newsletter
A megaphone
Stay up to date

You can receive email update from ICAEW insights either daily, weekly or monthly, subscribe to whichever works for you.

Sign up
Daily summaries
Three yellow pins planted into a surface in a row
News in brief

Read ICAEW's daily summary of accountancy news from across the mainstream media and broader financing sector.

See more