Cost-of-living crisis set to intensify as inflation closes in on double-digit territory
The cost-of-living crisis will come into sharp focus this week with figures showing inflation hurtling closer to double-digit territory.
The Bank of England this month hiked interest rates to 1 per cent as it warned that the UK economy will go into reverse and that inflation will peak at more than 10 per cent as the conflict in Ukraine and supply shortages compound the cost-of-living squeeze.
Economists expect another set of gloomy inflation figures for April, due to be released this Wednesday. Last month, Office for National Statistics data showed prices rose annually by an average of 7 per cent in March, but that figure did not take into account the most recent hikes in energy bills.
Key unemployment and wage growth numbers are due to be published a day earlier, this Tuesday. Unemployment has remained reassuringly low in recent months but there are fears it could nudge up as the impact of the economic crisis is felt and consumer discretionary spending weakens.
Analysts at investment firm AJ Bell said: “The Bank of England has pushed through its fourth interest rate increase in six months after its warning that inflation could reach 10 per cent towards the end of 2022.
“The central bank has also warned of possible recession in 2023 to show what a difficult balancing act it has, between taming inflation on the one hand but not jacking up interest rates so far that the economy weakens badly on the other.
“The latest inflation figures are due on Wednesday 18. On the day before that economists and central bankers will get to see the latest unemployment and wage growth numbers, which will give some feel for how well householders are coping (or otherwise) with the galloping increases in the cost of living.”
Earlier this month, members of the Bank of England’s nine-strong monetary policy committee voted 6-3 to increase interest rates from 0.75 per cent to 1 per cent - the fourth time they have voted for a rise in a row and taking rates to a level not seen since 2009.
Three members called for a bigger increase to 1.25 per cent due to worries over rocketing inflation, with the central bank ramping up its forecast for Consumer Prices Index (CPI) inflation to rise from 7 per cent currently to over 10 per cent in October - its highest level for 40 years - due to soaring energy prices.
In a grim set of forecasts, the Bank predicts growth will contract in the final three months of 2022 as the cost squeeze sees households rein in their spending.
Julie Palmer, a partner at business rescue and recovery specialist Begbies Traynor, said: “The Bank of England is warning that inflation could hit 10 per cent by the end of the year but we’re hearing anecdotal evidence costs have already gone beyond that for many businesses.
“Soaring energy prices are one of the biggest concerns for many businesses and although the government is hinting at action, the fear is that it will come too late to be of any help for many.”