‘Complete disaster’ Rishi Sunak given dire inflation figures just hours before mini-Budget
Britons set for 'devastating hit' if Sunak policy fails says CBI boss
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In the weeks running up the Spring Statement, the Chancellor has received widespread calls for an array of measures to tackle the UK’s soaring cost of living crisis which has now been laid bare in new data published this morning. According to the Office for National Statistics inflation hit 6.2 percent in February, a level not seen since 1992 and over three times the Bank of England’s target. Paul Craig, portfolio manager at Quilter Investors, said: “All eyes will be on the Chancellor today as he presents his Spring Statement and announces measures the government will take to tackle the ongoing cost-of-living crisis. This morning’s inflation data shows just how dire the situation is, and there is a clear need for the government to act to help save many from slipping into financial difficulty as their wages are quickly swallowed up.”
The largest single contribution to inflation came from housing and household services which accounted for 1.39 percentage points, mainly as a result of rising gas and electricity prices following the increase to Ofgem’s price cap in October.
Transport meanwhile remains the second-highest contributor following the rapid rise in petrol and diesel prices.
The Bank of England has become particularly concerned about the so-called second-round effects of inflation as businesses struggling with the rising operating costs in turn put up prices leading to workers demanding higher wages to keep up with inflation.
Businesses in turn may respond by raising prices further to deal with higher labour costs.
Although the Bank has been acting by raising interest rates such measures take a long time to take effect meaning the focus is now heavily on Rishi Sunak for any measures to ease the cost of living burden for people and businesses.
Jack Leslie, Senior Economist at think tank the Resolution Foundation, branded the figures “a complete disaster for living standards” and called on the Chancellor to set out a “bold response” including raising benefits to keep pace with inflation.
So far the Chancellor has already committed to an energy bill rebate in October this year, with speculation today may see an announcement of a cut in fuel duty.
Many businesses would like to see the Chancellor go further though by delaying a controversial increase in National Insurance which is set to add to the burden of both workers and employees.
Suren Thiru, Head of Economics at the British Chambers of Commerce, warned: “The looming National Insurance hike risks exacerbating this surge in consumer prices by damaging business cashflow further, leaving many firms with little option but to continue raising prices.
“It is critical that the chancellor uses today’s Spring Statement to give firms the financial headroom to keep a lid on prices, by tackling the cost of doing business crisis through delaying the national insurance rise and introducing a temporary energy price cap for small businesses.”
The warning over price rises was echoed by Helen Dickinson, Chief Executive of the British Retail Consortium, who predicted “shop prices look set to rise in the coming months” as retailers struggle to absorb higher costs.
Inflation is likely to go higher still in the coming months as Ofgem’s energy price cap rises again in April and oil prices find new heights due to pressures from Russia’s invasion of Ukraine.
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With such pressure on consumers and businesses, growth is set to slow this year leading to fears of stagflation, a period of high inflation and stagnant growth, or even recession.
This will make decision making difficult for the Bank of England which has been widely tipped to raise interest rates further this year.
Dan Boardman-Weston, CIO at BRI Wealth Management, said: “Raising rates at a time of high household bills and rising taxes could stifle the economic recovery by putting the consumer under too much pressure though.
“The Bank will need to carefully balance the need to try and tame inflation whilst not tipping the economy into a recession.”
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