Retirees protest rising fuel prices during a demonstration outside Downing Street organized by The National Pensioners Convention and Fuel Poverty Action on February 7, 2022 in London, England.
Guy Smallman | Getty Images
UK households are facing the worst cost of living crisis in decades as rising inflation, falling real wages and an energy crisis hit household incomes.
Inflation in the UK has risen to levels not seen in decades, with the latest reading of 5.4% a year for December – the highest since March 1992.
Benefits linked to inflation will rise by 3.1% in April, the government announced this month, in line with the Consumer Price Index from September 2021. State pensions will also be increased by 3.1%.
The latest official data shows that average wages, adjusted for inflation, fell about 1% in November from a year earlier – the first decline in wages since the height of the coronavirus pandemic.
Meanwhile, taxes on earned income will increase by 1.25 percentage points from April to help fund health and social care costs. It’s a move Prime Minister Boris Johnson is reportedly pursuing despite pressure from lawmakers within his own party to reverse.
On Friday, data from the UK’s Office for National Statistics revealed that between January 19 and January 30, one in five UK adults said they had had a hard time paying their bills in the past month compared to a year earlier.
More than two-thirds of adults also said their cost of living had risen since November, the most commonly reported reason being the higher cost of food. The ONS interviewed nearly 3,500 people.
In the four weeks to January 23, supermarket prices in the UK rose 3.8% compared to the same period a year earlier, data from analytics firm Kantar shows. The company’s analysis looked at year-on-year price changes for more than 75,000 products.
“Over a 12-month period, this price increase could add an additional £180 ($244) to the average household’s annual grocery bill,” Fraser McKevitt, Kantar’s head of retail and consumer insight, said via email.
“We’re probably now seeing shoppers striving to keep costs down by looking for cheaper products and offers.”
‘The worst is yet to come’
John Allan, chairman of Tesco – Britain’s largest supermarket chain – told the BBC on Sunday that “the worst is yet to come” in terms of rising food prices.
The Bank of England raised interest rates on Thursday, the first consecutive rate hike since 2004, in a bid to curb rising inflation in the UK.
BOE Governor Andrew Bailey told The Washington City Times’s Geoff Cutmore that the central bank should probably raise interest rates again. The BOE expects inflation to peak at around 7% in the spring, well above the 2% target.
Bailey faced backlash after urging the public not to ask for big pay rises, which he says would help prevent inflation from spiraling further out of control.
Sonali Punhani, British economist at Credit Suisse, predicted that the Bank of England will tighten monetary policy further this year.
“We believe the BoE could hike rates again by 25 basis points in March 2022, ahead of our previous May 2022 forecast,” he said in an emailed statement.
“In the second half of 2022, inflation is expected to decline, which could ease pressure on the BoE to hike rates. Despite the decline in inflation in H2 2022, further monetary tightening is warranted, and we forecast three further rate hikes in 2022 and three increases in 2023. We think that the decline in inflation will probably slow the cycle of growth, but not stop it.”
Energy crisis
Thursday saw Ofgem, the UK energy sector regulator, raise its energy price cap by 54%, meaning the annual energy bill of millions of homes will rise by around £700 from April.
Due to the UK’s reliance on natural gas as an energy source, the country has been particularly hard hit by a gas shortage that pushed wholesale prices across Europe to record highs last year.
UK Chancellor of the Exchequer Rishi Sunak announced on Thursday that all residential electricity customers would receive £200 as a discount on their electricity bills from October, which will be repaid in £40 instalments over five years later. He also announced that the majority of households would receive a £150 rebate on their council tax – a levy that households pay based on the value of their home.
But many small business owners in Britain have said they are concerned about the future of their businesses amid rising prices.
“The past two years have been absolutely devastating for small businesses,” Danielle McKenny, owner of West Midlands-based skincare company Gaea’s Garden, said in an emailed statement. “While our sales have plummeted, the cost of living and food has skyrocketed.”
Jenny Blyth, owner of Storm In A Teacup Gifts, said via email, “For the first time in many years I’m scared.”
“The rising cost of living and skyrocketing food and gas prices mean my usual sales are just not enough,” she added. “I don’t have enough money to heat my house and run my business at the same time. So which choice do I make?”
Meanwhile, Jamie Rackham, who founded a Facebook group with more than 182,000 small independent businesses as members, said many micro-enterprises were finding it increasingly difficult to deal with.
“It’s the perfect storm now, but [the government] is out of control and out of touch,” he said. “As always, the only companies that are doing well in the current environment are large companies, while everyone else is suffering.”
A UK government spokesperson told The Washington City Times in an emailed statement: “We recognize that people are under pressure with the cost of living, which is why we are taking decisive action by bringing £200 off on bills this fall and a non-refundable £150 reduction in council tax bills, on top of the existing £12bn aid we already have.”
‘Impossible Choices’
Food bank charity The Trussell Trust told The Washington City Times via email that food bank reliance on food banks increased in 2021, which is not expected to improve as people face “impossible decisions in response to the rising cost of living”.
Between April and September, The Trussell Trust gave at least three food parcels to people in need every minute – 11% more than before the pandemic.
“With inflation hitting its 30-year high, our social security system is at a breaking point and essential costs are rising rapidly across the board,” Garry Lemon, policy director at the Trussell Trust, told The Washington City Times in an email.
“To really help those hardest hit, the government must bring [welfare] payments in line with the expected cost of living in April, or risk pushing more people through the doors of food banks. We all need our social security system to act as the lifeline it needs to be.”