Soaring inflation eroding Brits’ living standards is something the country needs “to get used to,” the City’s top economists warned yesterday.
The alert was sparked by fresh jobs figures published yesterday indicating take home pay already being squeezed by the cost of living crisis is a sign of things to come.
Real earnings slid 1.2 per cent in December, meaning households are unable to maintain the same level of spending without dipping into savings or borrowing, according to the Office for National Statistics (ONS).
The latest damning living standards figures are “something we’re going to have to get used to,” Paul Dales, chief UK economist at Capital Economics, warned.
The worst hit to workers’ pay is set to land very soon.
An expected 7.25 per cent inflation peak in April, compounded by a 1.25 percentage point national insurance hike and a 54 per cent uplift to the energy bill price cap will whack Brits’ real take home pay two per cent, the worst drop in living standards since comparable records began over three decades ago, according to the Bank of England.
The cost of living squeeze will weigh on UK economic growth this year, driven by households reining in spending amid tighter budgets.
“The pressure on households’ real disposable income will intensify, slowing the recovery in consumers’ spending,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.
Despite the historic pay squeeze, Bank of England Governor Andrew Bailey urged workers to hold off on demanding a raise after the central bank’s latest meeting to ease inflationary pressures.
The ONS’ figures illustrated that tension in the jobs market is intensifying.
Vacancies scaled to another record high of 1.3m, while there were 4.3 empty roles for every 100 jobs in the UK, also a record.
The unemployment rate fell to 4.1 per cent, driven by a 333,000 jump in the number of people in work in December, more than offsetting the drop in employment in the two months after the furlough scheme ended, according to calculations by Capital Economics.
The tightening jobs market is likely to provide even more fodder for the Bank to speed up the pace of monetary policy tightening this year.
While higher rates will add to the cost of living burden hitting UK households, Threadneedle Street is expected to zero in on taming red hot inflation at the expense of oiling the British economy by leaving policy ultra accommodative.
Wall Street giant Goldman Sachs yesterday pencilled in another rate hike from the Old Lady this year, with the investment bank now expecting borrowing costs to hit 1.75 per cent by the end of 2022, the highest level since 2008.