Brits’ living standards eroded by inflation spike casting doubt over economic recovery’s strength
An inflation squeeze that is choking Brits’ pay packets is threatening to throttle the consumer led recovery.
Brits’ take home pay is being corroded by the cost of living spiralling to the highest rate in recent history, revealed figures published yesterday by the Office for National Statistics.
The damning data comes as the City braces for fresh inflation numbers this morning.
Most economists expect the print to come in at 5.2 per cent, which would be the hottest rate in nearly 30 years.
For the first time in around a year and a half, pay rises are being cancelled out by the cost of living. Real earnings last November fell annually for the first time since July 2020, dipping to minus 0.9 per cent.
There has only been a handful of times since the financial crisis that Brits’ living standards have been eroded by inflation, underlining the severity of the current cost of living crisis.
Worryingly, the inflation sting is set to get even worse, casting doubt over whether the British consumer can continue to power the country’s economy.
The corrosion of living standards is “an unwelcome development which is likely to worsen over the next few months,” Martin Beck, chief economic advisor to the EY Item Club, warned.
The UK economy is heavily reliant on households spending at services businesses, such as pubs, bars and restaurants, meaning a sharp pull back in purchases to offset inflationary pressures would choke growth this year.
Real earnings will “fall further to minus 2.2 per cent as CPI inflation rises to a peak of 6.9 per cent in April,” led higher by the energy price cap being hoisted 50 per cent, warned Paul Dales, chief UK economist at Capital Economics.
The seeming inevitability of the world’s top central banks launching a rate hike cycle this year to get a hold of inflation triggered a sea of red on global markets yesterday.
London’s FTSE 100 index dropped 0.63 per cent to close below the 7,600 mark.