Brits brace for perfect storm of tax rises, spiraling inflation and energy crisis
Pensioners demonstrate against rising fuel costs at the demonstration held outside Downing Street, called The National Pensioners Convention & Fuel Poverty Action. It took place on February 7, 2022 in London.
Guy Smallman | Getty Images
British households now face the most severe cost of living crisis since decades. Inflation, declining wages, and a energy crisis have all contributed to a drop in household incomes.
Inflation in the U.K. has soared to levels not seen for decades, with the latest reading hitting an annual 5.4% for December — the highest it’s been since March 1992.
The government has announced that welfare payments linked to inflation will rise by 3.1% in April. This is in keeping with the Consumer Prices Index readings from September 2021. Also, the state pensions will see an increase of 3.1%.
The latest official data showed that average earnings, when adjusted to account for inflation, fell by around 1% in November from a year earlier — the first decline in wages since the height of the coronavirus pandemic.
Currently, income taxes are being taxed. increase by 1.25 percentage points from AprilContribute to the funding of health and social care. Boris Johnson, the Prime Minister, is making this decision. reported to be pushing ahead with, despite pressure to U-turn from lawmakers within his own party.
Data from the U.K.’s Office for National Statistics showed that one fifth of British adults reported having difficulty paying their bills in the last month, compared with the previous year.
Over two thirds of adult respondents also stated that their living costs have increased in the past year. The most common reason was the increase in food prices. Nearly 3,500 respondents were interviewed by the ONS.
Kantar data shows that grocery prices increased by 3.8% in the U.K. during the period from Jan. 23 to 23, compared with the previous year. This analysis was done by Kantar and looked at price fluctuations year-on–year for over 75,000 products.
“Taken over the course of a 12-month period, this rise in prices could add an extra £180 ($244) to the average household’s annual grocery bill,” Fraser McKevitt, head of retail and consumer insight at Kantar, said via email.
We expect to see consumers looking for lower prices and promotional offers.
Bank of England raised interest rates on ThursdayIn an effort to reduce the U.K.’s rising inflation rate, this was its first rate increase in consecutive years.
Andrew Bailey, Governor of the BOE told Geoff Cutmore at CNBC that rates would be hiked again by the central bank. The BOE expects inflation to peak at around 7% in the spring — way above its 2% target.
Bailey faced backlashHe urged the public not for pay rises and argued that it would stop inflation spiraling out-of control.
Sonali Punhani from Credit Suisse in the U.K. predicted that this year, the Bank of England will increase its tightening of monetary policy.
He stated in an emailed message that “We think the BoE can hike rates again 25 basis points by March 2022, earlier than our previous forecasts of May 2022,”
Inflation is predicted to decrease in the second half 2022. This could ease the BoE’s pressure to raise rates. Our view is that despite the fall in inflation in H2 2022, further monetary tightening is warranted, and we forecast three further rate hikes in 2022 and three hikes in 2023. The drop in inflation will likely slow but not end the hike cycle.
Ofgem was also present on Thursday, which is the U.K.’s regulator of the energy sector. raise its energy price cap by 54%, meaning millions of households’ annual energy bills will increase by around £700 from April.
Due to the U.K.’s dependence on natural gas for energy, it has been particularly affected by the gas shortage. pushed wholesale prices up to record highs across Europe last year.
British Finance Minister Rishi Sunak announced on Thursday that all residential electricity customers would be loaned £200 as a discount on their electricity bills from October, which will later be repaid in £40 installments over five years. He also announced that the majority of households would be given a £150 rebate on their council tax — a levy paid by households based on the value of their home.
However, many small-business owners across Britain have expressed concern about the prospects of their business due to increasing 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 sales have dropped, costs of living and food have skyrocketed.
Storm In A Teacup Gifts owner Jenny Blyth said via email, “For the first-time in many years, I’m afraid.”
Her comments included that “the rising cost of living as well as the rocketing prices for food and fuel means my normal sales don’t make enough.” I don’t have the money to both heat my house and manage my business. Which is the best choice?
Meanwhile, Jamie Rackham, who founded a Facebook group with more than 182,000 small independent businesses as members, said many micro businesses were finding it increasingly difficult to cope.
“It is the perfect storm at this moment, but [the government]He said that the country is “rudderless” and was out of touch. Big businesses are doing the best in current economic conditions, while the rest of the world is suffering.”
A spokesperson for the U.K. government told CNBC in an emailed statement: “We recognize people are facing pressures with the cost of living, which is why we are taking decisive action through a £200 discount on bills this autumn and a £150 non-repayable reduction in Council Tax bills, on top of the existing £12 billion of support we already have in place.”
CNBC was notified by The Trussell Trust via email about the increase in dependence on food banks in 2021. The Trussell Trust said that this isn’t likely to be the case as many people are faced with “impossible choices” due to the crisis in living costs.
Between April and September, The Trussell Trust gave at least three food parcels every minute to those in need — 11% more than they were providing before the pandemic.
Garry Lemon, Trussell Trust policy director, stated that inflation has reached a 30-year peak and that essential costs are increasing rapidly. He sent this email to CNBC.
“In order to truly assist those most affected, government must provide assistance [welfare]Payouts should be in line with this April’s expected cost of living or you risk putting more people at the door of food banks. Our social security system must be the lifeline that we all depend on.