Inf lation hits 9.1%
Sunak faces fresh calls to slash taxes as prices rise at fastest rate in four decades
INFLATION hit yet another 40-year high in May amid warnings that the rise in food prices will continue to spiral.
The jump in the cost of living hit 9.1 per cent, up from 9 per cent in April, as the Office for National Statistics said essentials such as food, housing, transport, electricity and fuel were driving the squeeze.
Inflation is now at its highest level since February 1982, under Margaret Thatcher. Lord Rose, the chairman of Asda, said he was already seeing a ‘massive change in behaviour’ as customers tightened the purse strings, with some shoppers asking cashiers to stop after they hit £30.
‘I’m of the generation that remembers what it was like last time. And once [inflation] gets hold, it’s quite pernicious,’ Lord Rose told the BBC.
‘It takes a long time to eradicate... What’s rather sad is that the country, the Government, perhaps the Bank of England, didn’t see inflation coming quickly.’ He urged the Treasury to ‘put its hand in its pocket again’, as it did with Covid. ‘At the end of the day we did it once, this is a crisis of similar proportions, and people could be affected for very much longer than Covid affected us,’ he said.
Measures could include slashing VAT, or funnelling cash to low-income households, he added. Chancellor Rishi Sunak has so far resisted calls to cut taxes, after increasing national insurance in April and freezing income tax thresholds, so more workers are forking out more cash as their wages rise. Mr Sunak said: ‘We have taken targeted action to help families, getting £1,200 to the 8million most vulnerable households. We are using all the tools at our disposal to bring inflation down and combat rising prices.’
But Andrew Sentance, formerly on the Bank of England’s interest rate committee, said: ‘Is this the same Rishi Sunak who forced through a national insurance rise which added to business costs and squeezed household finances?’
Experts warned the climb in prices would also add to worker discontent. Sandra Horsfield, from Investec bank, said: ‘The rising cost
‘Shoppers stopping cashiers at £30’
of essentials will fan the flames of the cost of living crisis. This makes the current wave of actual and proposed industrial action, in order to seek higher wages to compensate, particularly challenging to resolve.’
Inflation is to worsen later this year. Russia’s invasion of Ukraine is piling pressure on the price of oil and food, and Covid hiccups are still causing chaos in supply chains.
When energy regulator Ofgem hikes the price cap on household bills in October by around 40 per cent, the Bank of England warns inflation could surpass 11 per cent.
Think-tank the National Institute of Economic and Social Research is forecasting that food price inflation alone could hit double-digits by the end of the year, and says 1.2million households are facing energy and food bills which are larger than their incomes, pushing them into debt.
The Bank of England raised interest rates from their pandemic low of 0.1 per cent last December to 1.25 per cent. Higher rates should tame inflation, encouraging people to save – but they also risk reversing the Covid recovery, and raising the cost of debt for borrowers.