Brits will be hit by a multi-pronged squeeze on their living standards this year, economists are warning after new figures published today revealed inflation has climbed to a fresh 30-year high.
A combination of accelerating price rises, tax hikes and higher interest rates will erode Brits’ finances at the worst rate since the late 1940s, according to the Resolution Foundation.
Households are likely to slash spending to offset the worsening cost of living pinch, cooling the UK’s economic recovery this year.
The worrying assessment was sparked by fresh figures from the Office for National Statistics (ONS) revealing inflation reached a new near three decade high of 5.5 per cent last month, beating expectations for the fourth month running.
Experts took the figures as a sign inflation will surge even higher, with analysts at Goldman Sachs now expecting it to breach eight per cent in April.
In an attempt to chase down accelerating prices, the Bank of England will hike interest rates at each of its meetings through to August and send rates to 1.75 per cent by the winter, heaping further pressure on household finances, Goldman said.
However, rising wages and ongoing supply chain disruption will keep price rises elevated throughout the year, leaving inflation still at five per cent next January, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.
Higher than forecast inflation will ramp up the government’s interest bill by over £10bn this year, eating into Chancellor Rishi Sunak’s room to deliver tax cuts.
The public finances are “more exposed to rises in the cost of servicing… debt, and it remains to be seen whether the recent sharp increases will be outweighed by stronger revenues,” Isabel Stockton, a research economist at the Institute for Fiscal Studies, warned.
The retail price index, which is used to calculate the amount the government pays on its debt, is expected to trend much higher than the headline rate of inflation over 2022.
Separate ONS figures showed British factories raised prices 9.9 per cent over the last year, illustrating inflation is pinching both consumers and businesses.
Concern about the blow the tightening cost of living crunch will deliver to household finances has convinced experts to slash growth forecasts this year.
Wall Street giant JP Morgan cut its projections for GDP growth 1.1 percentage points to 3.7 per cent, while Threadneedle Street now thinks the economy will expand 3.75 per cent in 2022 instead of five per cent.