Britain’s hard-pressed households could feel even worse this week as official inflation figures show how rapidly the cost of living is rising. Economists predict a jump from 7% in March to 9.1% in April.
If the experts are right, the consumer price index will be at its highest level since 1990, when the UK struggled with one of its worst post-war property declines and a full-blown recession.
Not that families need to tell — disposable income across the country has been hit hard. The price of unleaded petrol may have stabilized between £1.60 and £1.70 over the past month, but utility bills and food prices are rising across the board.
James Knightley and James Smith, economists at ING, said the month-over-month increase would reflect a 54% rise in household gas and electricity bills since early April, following the lifting of the energy price cap by regulator Ofgem.
Citing rising energy costs, the Bank of England forecasts inflation to rise above 10% after the summer. “We’re less sure it’s going to get that bad, but on the other hand, inflation has consistently positively surprised,” the statement said.
Job market data will be released Tuesday, a day before inflation figures.
Central bank officials are most concerned about wage increases of about 5.4% in recent months, and the extent to which workers will demand increases in their monthly income to keep pace with rising inflation in the country. next year. This is the feared precursor to a wage-price spiral that could push inflation up in the coming years.
Some members of the Bank’s Monetary Policy Committee (MPC) believe that wage demands could rise not only this year, but next year as well and possibly until 2024 – and that employers will be forced to inflate prices to cover higher production costs – not just this year, but next year as well.
But at least two of the nine-member committee indicated at their meeting earlier this month that they believed the opposite: wage growth had already leveled off.
Tony Wilson, director of the Institute for Employment Studies think tank, believes the labor shortage will keep wage growth robust. The UK has a record number of vacancies and an increasing share of staff switching jobs, making it difficult for employers to fill vacancies.
However, hundreds of thousands of companies operate on very small profit margins and know that their customers are tightening their belts: this limits their ability to pay higher wages. These companies are likely to reduce production or lower service levels rather than raise prices.
“It’s more likely that a restaurant won’t open more than lunchtime than hiring a second chef at much higher wages,” Wilson said.
Unemployment is expected to remain low at 3.8% – the same as the previous month – although this figure is flattered by the 500,000 workers, mostly those over 50, who have left the labor market in the past 18 months.
And since 2019, the Brexit effect has denied employers some 500,000 foreign nationals expected to enter the UK labor market.
This combined gap between millions of workers was important in explaining the state of the UK job market compared to other economies of similar size, Wilson said. In France, for example, where the employment rate has remained flat due to the pandemic, there is no loss of skilled workers and wages remain under control.
Wilson said the government should focus its efforts on helping those who have become economically inactive return to work. Instead, the only policy action is over at the Bank, where rate hikes are in place to quell inflation when the MPC meets in June and August.
However, Paul Dales, chief economist in the UK at the consultancy Capital Economics, said his forecast that key interest rates could rise from 1% to as much as 3% as the danger appears to be too aggressive.
A decisive factor is the prospect of a recession. The economy shrank by 0.1% in March, after leveling off in February. A recession is already looming.