Rishi Sunak suggests there may be more financial support for households as inflation bites

ITV Business and Economics Editor reports on the rise of people using foodbanks as inflation bites

The UK economy shrank again in December as the Omicron Covid variant spread. Many retailers and hospitality firms were badly bruised by the introduction of Plan B but wider damage to activity was limited. In the end, output fell back to its pre-crisis (February 2020) level. Not only could things have been so much worse, but there is also a feeling in the air that perhaps the worst is over.

This morning, Gatwick Airport announced that it will reopen its South Terminal next month. It has been mothballed for nearly two years.

The chancellor praises a “resilient” economy and boasts that the UK experienced “the fastest growth in the G7” in 2021, although we also experienced the largest collapse in activity in 2020.

Gatwick's South Terminal is set to open for the first time in two years.

The road ahead looks like one you’d avoid if you had the choice. Inflation is high and rising, taxes are going up, interest-rates are rising. The Bank of England believes that the people of the UK face a record squeeze on their disposable incomes in 2022. The best we can hope for is that the pain is short-lived.

Last week, the chancellor announced significant support to cushion households from a sharp rise in their energy bills. A big inflation shock is coming. A one-off, repayable discount of £200 and a rebate on council tax bills will certainly help those who already feel up against it, but the National Institute of Economic and Social Research still expects an additional 580,000 households to become destitute in the next 12 months. The calculation is alarming and suggests that those on the lowest incomes are still massively exposed. Rishi Sunak is under pressure to do more. “As a chancellor, I am always listening, I’m always making sure that the policies we have got in place are the right ones to help people,” says Mr Sunak.

“We will continue to adapt as circumstances evolve.”

The chancellor is anxious not to commit himself and wasn’t keen to say if he has ever personally experienced any financial difficulty. The National Living Wage is set to rise by 6.6% in April, benefits will rise by 3.1%, but the headline rate of inflation is expected to clear 7% in the same month. Prices are rising faster than pay. Last week, the Governor of the Bank of England urged wage restraint. Andrew Bailey argued that asking for a big pay rise would be understandable but self-defeating, increasing the risk of another round of spiralling prices. Mr Bailey’s comment drew ferocious criticism. Perhaps understandably, Rishi Sunak has decided this is not a debate he is keen to join. “What it does to the private sector is not the government’s job to get involved in pay negotiations,” he told me. Will he be showing wage restraint when it comes to public sector this year? He wouldn’t say.

Last October, Sunak promised a “fair and affordable” pay rise for five million public sector workers. It’s unthinkable they’ll get anything like 7%. A showdown with the unions looms. A boa-constrictor like squeeze on living standards would be a challenge for a popular government. Boris Johnson’s is mired in scandal and controversy. The Mirror recently reported that the chancellor attended one of the alleged parties being investigated by the police - the one on June 19, 2020 for the PM’s birthday.

More than 50 people have been sent questionnaires by the police. Is Rishi Sunak one of them? “Not to my knowledge”. Does he expect to get one? “That’s not something I know about”. Rishi Sunak is the bookies favourite to replace Boris Johnson if the prime minister is forced to quit. For now, he continues to offer Mr Johnson his “total support”. Asked if he believes Boris Johnson to be a man of honesty and integrity, Sunak replied “of course, he is the prime minister of the United Kingdom”.