Inflation to hit 6.9% following price cap hike

HOUSEHOLD finances are being increasingly squeezed by inflation and falling wage growth, new data this week from the Office for National Statistics is expected to show.

The data comes as economists warn inflation will be sent even higher by the Government’s energy price cap, which is expected to rise 56 per cent, or £715, to more than £1,992 when regulator Ofgem updates it at the start of February. On Tuesday, the ONS is likely to say average earnings over the three months to November grew 4.2 per cent, down from 4.9 per cent the previous month. The following day, it is tipped to say consumer price index inflation edged up 0.1 points in December to 5.2 per cent.

Martin Beck, chief economic adviser to the EY ITEM Club think tank, said: “This week we will have more evidence of the squeeze. Things got off to a good start in the fourth quarter but have been knocked off course by Omicron and inflation.”

Early next month Ofgem will announce what the latest price cap will be for households on standard tariffs. The cap, introduced to protect people from paying excessively, is currently £1,277 but will increase due to sky-high wholesale gas prices. The updated price cap will come into force in April.

“There is little doubt as to the trend for inflation over the next three to six months,” Investec chief economist Philip Shaw said. “Where it ends up depends on the price cap. Our analyst calculates it could rise 56 per cent.”

Capital Economics’ senior UK economist Ruth Gregory said: “The next big shift will come when utility prices rise in April. We think a rise of 50 per cent is on the cards, which would add 2.1 points to overall inflation and push it up to 6.9 per cent.”