Perfect storm with households braced for more struggle ahead
INFLATION is running at 5.5%, new figures showed this week. It means prices for the goods and services bought by many households increased by 5.5% over the past year, on average.
It's bad news for anyone who relies on the state pension, which is increasing by just 3.1%. And it's also bad for anyone whose annual pay is increasing by less than the rate of inflation. It means your employer is cutting your salary in real terms, which means after inflation is taken into account.
But what does the 5.5% figure mean for household budgets? The Office for National Statistics, the official body that measures these things, has produced a detailed breakdown.
It shows the cost of food has risen by 5.1%. To put it another way, what cost you £10 a year ago will now cost you £10.51.
And some prices have shot up faster than others. The cost of fruit has risen by 6.2%. The cost of milk, cheese and eggs is up by 6.1%.
Non-alcoholic drinks are also more expensive. Coffee, tea and cocoa are up by 7.5%. If you used to spend £10 on these products a year ago, that's now £10.75.
And the cost of clothes has risen by 8.8% while shoes have gone up by 9.1%.
As we all know, fuel bills have risen. Electricity bills rose by 19.2% over 12 months, and household gas rose by 28.3%.
That's before the huge increase in prices coming into effect in April, with another major increase likely towards the end of the year.
Some things increased in price more slowly. The inflation rate for beer was just 1.3%, so if you have any money left then at least you can afford a trip to the pub. Housing rents rose by 2.3%.
There are a few small mercies, but it's clear that many households are facing higher heating bills and spending more in supermarkets – or have been forced to cut back.
And it's going to get worse, because the Bank of England predicts inflation will reach 8% this year.
And the war in Ukraine will add to the misery. A report from MPs has warned that the conflict is helping to push up prices.
The cross-party Committee of MPs said the UK is likely to feel economic consequences from the sanctions imposed against Russia (though it also said the sanctions were the right thing to do), and called on the Government to provide additional financial assistance to households.
Despite producing significant amounts of its own oil and gas, the UK is not protected from the economic consequences of sanctioning Russian oil and gas production, MPs said.
Even though we don't get supplies from Russia, the price paid for gas in the UK is dependent on the level of demand for gas in Europe and the price paid for oil is dependent on the global price. Further sanctions on Russian oil or gas will lead to higher prices, which in turn will feed through to UK households and businesses.
There will be a cost to the UK economy of the economic sanctions imposed on Russia, even though it's not yet clear how much.
The Committee believes that, on the information currently available, it is most definitely a cost worth bearing in order to aid Ukraine in opposing Russian aggression.
However, that cost, combined with the already present pressures in the UK on the cost of living, will impact the whole country, and will be felt particularly by low income households.
And business confidence has wavered in response to Russia's invasion of Ukraine.
The MPs want the Government to consider what steps can be taken to boost business investment and growth and specifically how it can help firms which have been directly affected by the economic sanctions against Russia.
The MPs highlighted possible measures the Government could take, including increasing Universal Credit payments; introducing a winter grant scheme at local authority level to help households with rising energy bills; providing more Government support for food banks; considering delaying the 1.25% National Insurance tax hike, due to be introduced in April, and considering an alternative such as a temporary income tax rise on higher earners, and providing study grants and support for higher and further education colleges.
MP Mel Stride, Chair of the Treasury Committee, said: “Putin's deplorable invasion of Ukraine has sent shockwaves around the world and the UK has rightly imposed considerable and unprecedented sanctions on Russia. As a Committee, we condemn the inhumane actions of President Putin and are united in the view that we must continue to press forward with significant sanctions to cause maximum damage to Russia's economy in order to persuade Putin to stop.”
But she added: “This war will also have economic consequences here at home, and while these are worth bearing to support Ukraine in their fight for freedom, it's becoming increasingly clear that the Government will need to support those who are hit hardest by price rises.
“Recent reports show that the public finances are in a stronger position than anticipated, and the Chancellor should use this additional fiscal firepower to bring forward support for those on the lowest incomes.”
There will be a cost to the UK economy of the sanctions imposed on Russia, even though it’s not yet clear how much