The squeeze on UK household budgets accelerated ahead of Rishi Sunak’s spring statement, which is expected to offer only minor changes to ease the cost of living crisis.
Inflation hit 6.2% in the 12 months to February, according to official figures from the Office for National Statistics (ONS), a new high in 30 years.
The measure of price growth in the economy, the consumer price index (CPI), will hit 8% next month when the new energy price cap rises more than 50%, the Commission said. Bank of England last week. It could stay at this level for almost three months.
Despite growing political pressure, the Chancellor is expected to propose only small changes to support households in her spring statement on Wednesday. Speculation suggests this could include a reduction in fuel tax of up to 5p.
Mr Sunak could also raise the threshold for national insurance contributions. Such a measure would protect some employees from the increase of around 10% in this tax that the Chancellor is expected to introduce in April.
Rachel Reeves, Labour’s shadow chancellor, said: ‘With inflation still soaring today, the chancellor’s choice is clear.
Mr Sunak could ‘choose an unfair tax hike on workers and businesses at the worst possible time’ or ‘reverse his tax hike and ease the cost of living hitting families’ via a windfall tax on profits oil and gas producers, she mentioned.
Household compression is likely to continue through this year and into 2023, economists have warned. Households are set to face the worst real income hits in half a century, with inflation outpacing wage growth.
The latest data “offers a taste of the huge income squeeze to come this year, with inflation likely to reach at least 8% this spring – which could be the highest in 40 years – with a second peak this fall,” said Jack Leslie, senior economist at the Resolution Foundation, an economic think tank.
“This prolonged period of high inflation – which millions of people have simply never experienced before – is a complete disaster for living standards,” he said, adding that the Chancellor should increase benefits in inflation to avoid a loss in real terms of £10. billion for the UK’s poorest.
Last week, the Bank of England hinted that price growth could peak again in October when the new energy price cap is introduced. That could be 35% more than April’s new cap. Analysts at investment bank Goldman Sachs predict that energy bills could help accelerate the pace of price growth by up to 9.5% later this year.
A sharp rise in inflation ‘adds to pressure on the Chancellor to further offset the cost of living crisis in today’s spring budget statement’, said Paul Dales, the UK’s chief economist at Capital Economics, a consulting firm.
Mr Dales warned that some of the price growth statistics may have increased as they are measured against a period when Covid-19 restrictions were still in place. Yet there is “real inflation” in the economy that is expected to continue. Food inflation will soon reach 6%, he added.
“With petrol prices having risen by 50p since the start of the pandemic, a 5p cut in fuel duty by the Chancellor today would feel like playing on the edges,” Mr Dales said.
The pressures are not only felt by consumers, input costs for businesses are also rising sharply.
Prices for goods leaving UK factories rose to their highest level in 14 years, said Grant Fitzner, chief economist at the Office for National Statistics (ONS), adding that prices had risen for a host of services and goods in the economy.
“Clothing and footwear saw a return to traditional February price increases after falls last year when many stores were closed. Furniture and flooring also contributed to higher inflation as prices started to recover after New Year’s sales,” he said.
In December last year, prices began to rise at the fastest rate since the early 1990s, largely due to energy costs and supply chain crises.
Russia’s violent invasion of Ukraine has put additional pressure on energy costs, as the country is a major exporter of oil and natural gas.
Other countries are looking for alternative sources for energy imports, further increasing demand. The cost of an average tank of fuel has risen to around £90, up around £33 from May 2020, according to the Business Department’s weekly road fuel data.
Russia and Belarus, which both face heavy sanctions, also generate about 38% of the world’s potash, a key input for fertilizers. Ukraine, one of the world’s largest grain exporters, is facing severely disrupted harvesting and sowing seasons for wheat and maize.
On Tuesday, Environment Secretary George Eustice warned that food prices could rise by up to 8% in the coming months as animal feed…
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This notice was published: 2022-03-23 09:03:44