Prices are rising in stores and consumers are facing a fall. Official figures show that inflation rose fastest in a decade in August, as the effects of Covid-19 and Brexit drive up the cost of living.
Exceeding the forecasts for urban economists, the increase in the consumer price index by 1.2 percentage points was the largest since January 1997, the year when Gordon Brown would later submit Bank of England independently to manage inflation. With 3.2%, the CPI is now the highest since March 2012.
Questions will be asked about how Threadneedle Street will react. But there is a tougher challenge for the Treasury: is this really the right time to take more money out of people’s pockets?
Despite rising living costs, it looks like the plan, with the greatest social security ever planned for one night universal credit, a public sector wage freeze and enter social security contributions.
September is the month when NHS workers will receive an extra click of cash in their pay packages from the government’s wage agreement announced in July, which is updated to April. While this will help, the paychecks will also come as well 3% salary increase erased by the rising cost of living.
Combined with the end of leave this month, the government’s plans will take a significant slug of demand out of an already declining economy. Building a better strategy can soon be confused by more of the same thing, in a restart of the 2010s when the recovery from the financial crisis was stifled by austerity measures that affected household spending.
Lack of workers and materials has weighed on the business in recent months and brought growth close to a halt. With the Delta variant threatening a difficult winter ahead, warns experts Britain’s economy is heading for a rough spot.
Alarm bells should still ring in the treasury Rishi Sunak seems sanguine. There are reasons why the Chancellor can take some comfort. The Bank of England expects inflation to fall back from a peak close to 4% this year, as temporary factors decline.
With the CPI based on the annual price change for shopping baskets and services, much of the recent increase reflects a sharp decline from a record decline last year. Consequently, record price increases over the last 12 months would need to continue to set new records over the next 12 months, and this is unlikely.
The biggest factor in August was the Chancellor’s ““Eat out to help“A year earlier, when Sunak’s dishes at half price temporarily lowered the cost of living. The Office for National Statistics said that inflation should have been at least 0.4 percentage points lower as a result.
Although the chancellor won praise for helping households’ finances last year, the pressure is increasing for the opposite reason.
Business leaders warn that delivery disruptions can lasts at least two years and some changes will prove to be permanent, in particular from Brexit create tougher barriers to trade and reduce the supply of EU workers in the UK.
The supply chain is disrupted worst since the 1970s and companies report a record number of job vacancies. Shipping costs have quadrupled, raw material costs for manufacturers have increased and global energy prices have reached record highs.
With growth hitting a soft spot this fall, economists warn that there is a scent of stagflation in the air. It will be an awkward period for the Treasury and the Bank of England to cope, but still tougher for hard-pressed British households.