Brits brace for multi-pronged living standards crunch as inflation hits new 30-year high

beijingwalker · Feb 16, 2022

Brits brace for multi-pronged living standards crunch as inflation hits new 30-year high

WEDNESDAY 16 FEBRUARY 2022 4:45 PM

Brits will be hit by a multi-pronged squeeze on their living standards this year, economists are warning after new figures published today revealed inflation has climbed to a fresh 30-year high.

A combination of accelerating price rises, looming tax hikes, higher interest rates and swelling energy bills will erode Brits’ finances at the worst rate in six decades, according to calculations by the Resolution Foundation.

Households are likely to rein in spending to offset the worsening cost of living pinch, cooling the UK’s economic recovery this year.

The worrying assessment was sparked by fresh figures from the Office for National Statistics revealing inflation reached to a new near 30-year high of 5.5 per cent last month, beating expectations for the fourth month running.

Experts took the figures as a sign inflation will surge even higher, with Paul Dales, chief UK economist at Capital Economics, now expecting it to peak at 7.9 per cent in April.

In an attempt to chase down accelerating prices, the Bank of England will hike interest rates at each of its meetings through to August and send rates to 1.75 per cent by the winter, heaping further pressure on household finances, according to Goldman Sachs.

However, rising wages, ongoing supply chain disruption and swelling energy bills will leave inflation elevated throughout the year and keep it at five per cent next January, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.

Higher than forecast inflation will ramp up the government’s interest bill by over £10bn this year, eating into Chancellor Rishi Sunak’s room to deliver on promised tax cuts.

The public finances are “more exposed to rises in the cost of servicing its debt, and it remains to be seen whether the recent sharp increases will be outweighed by stronger revenues,” Isabel Stockton, a research economist at the Institute for Fiscal Studies, warned.

The retail price index, which is used to calculate the amount the government pays on its debt, is expected to trend much higher than the headline rate of inflation over 2022.

Concern about the blow the tightening cost of living crunch experts will deliver to household finances has steered experts to slash forecasts for economic growth this year.

Wall Street giant JP Morgan cut its projections for GDP growth 1.1 percentage points to 3.7 per cent, while Threadneedle Street now thinks the economy will expand 3.75 per cent in 2022 instead of five per cent.