According to a recent study, rising inflation will add £2,370 ($2,900) to the average UK household’s expenditures this year, putting more pressure on the Bank of England and the government to respond to the cost-of-living crisis.
Inflation Storm Will Cost Average UK Household £2,400 This Year!!!
As the Ukraine crisis drives up fuel and energy prices, inflation – the pace at which prices grow – is at a 30-year high.
The Bank of England has warned that inflation could hit 10% in the coming months.
Inflation-adjusted disposable incomes will decrease by approximately 3.4 percent this year, the largest loss on record, as salaries fall behind price increases and the government raises taxes.
The probability of a recession was raised to 40% on Monday, up from 28% last month and the highest level since the third coronavirus lockdown in January 2021.
Given this backdrop, BOE Governor Andrew Bailey is expected to have a difficult time speaking before a panel of MPs on Monday, when he joins other monetary policymakers. This comes as political pressure on the central bank to identify the inflation spike sooner.
Economists polled this week lowered their growth projections for this year and next, forecasting even higher inflation and predicting that the Bank of England will be obliged to raise interest rates again.
The research is based on a prediction that consumer prices will rise 8% this year, assuming a 75% increase in energy costs, a 22% increase in fuel bills, and a 6% increase in food prices. These categories alone account for £1,380 a rise of almost 60%.
This year, British consumers face an unprecedented squeeze on real incomes, and surviving the shock will require people to dip into savings or borrow more.
Why Has Inflation Increased So Dramatically?
Inflation is the gradual rise in the price of something. For example, if a loaf of bread costs £1 one year and £1.07 the following year, the yearly inflation rate is 7%.
Fuel prices are currently the largest driver of inflation. Average petrol prices increased by 12.6p per liter between February and March, the highest monthly increase since records began in 1990.
For some firms, the rate of VAT (the tax paid when purchasing goods and services) has also increased.
In England and Wales, air passenger duty and vehicle excise duty rates have risen, as have the costs of postage and water bills.
In England and Wales, regulated train rates have increased by up to 3.8 percent, the most significant increase in nine years.
For some homeowners, higher interest rates make mortgage payments more expensive.
The headline inflation rate is average because price increases in different locations vary. Food prices could rise by much to 15% this year, according to one food industry executive.
What Are Several Reasons For The Current High Rate Of Inflation?
It began to rise in 2021, attributable to the economy’s recovery from the Covid issue.
Following the relaxation of Covid limitations, economies all around the world, including the United Kingdom, opened up. People naturally wanted to start buying items again after that.
Customers couldn’t get enough of some of those items, but businesses selling them couldn’t get enough of them. This resulted in price increases, particularly for imported items.
In addition, energy (oil and gas) prices have risen dramatically. All of these factors pushed prices (and inflation) higher.
When inflation is caused by external forces such as growing global energy prices, the effectiveness of UK interest rate hikes to control inflation is limited.