ITV News Business and Economics Editor meets the families hit hard by the rising cost of living
It’s a little worse than expected but we knew this was coming.
The annual rate of inflation hit 5.4% in December, its highest level in almost 30 thirty years.
High inflation makes everyone poorer but the outlook for the poorest households in the UK is, frankly, bleak and distressing.
Living costs are rising on the back of food, energy, clothing and footwear prices in particular. Most people would consider these everyday essentials.
It’s a “cost of living catastrophe,” declares Unite, the UK’s largest union. It is demanding that employers respond by raising pay and calculates that 7.5% should do the trick.
In Coventry, bin collectors have gone on strike over pay. In Bristol, Cheltenham, Gloucester and Ross-on-Wye, Bus drivers for Stagecoach plan to ballot on whether to do the same.
Economists will tell you that inflation-busting wage increases which aren’t the result of productivity gains will simply lead to higher prices, leaving no one better off.
The Bank of England will be hoping people decide they will tough out this hit to their real incomes.
Those on the lowest incomes will really struggle to take rising prices on the chin, not least because there’s worse to come.
“I understand the pressures people are facing with the cost of living,” insists the chancellor. “We’ve provided support worth around £12 billion this financial year and next to help families”.
Empathy is important but Rishi Sunak will surely have to come up with more to protect the most vulnerable from what lies ahead.
Cutting VAT on domestic fuel; removing green levies from household bills; making the Warm Homes Discount more generous; boosting Universal Credit; underwriting loans to energy suppliers and/or a windfall tax on their profits. There are plenty of ideas in play.
Some believe that prices are rising with such velocity that another interest rate rise in February is now nailed on.
Last month, the Bank of England increased Bank rate to 0.5% and forecast inflation would peak “around 6%” in the Spring.
Capital Economics now expects inflation to clear 7% and remain above 4% for rest of this year.
The cost of living is being driven higher by energy bills, supply chain bottle necks and a pivot away from spending on services and towards goods which occur as economies unlocked.
These are global issues and the Bank has always argued that they are likely to prove short-lived.
The Banks will like only act if it sees evidence that inflation is starting to be generated domestically and there’s risk of it becoming entrenched.
The UK labour market is very tight. What happens next depends on whether the unions get the pay rises they are seeking.