Britain’s struggling households could get worse by this week, when official inflation figures show how fast the cost of living is rising. Economists are expecting a rise of 9.1% in April from 7% in March.
If experts are right, the CPI will be the highest since 1990, when the UK was struggling with its worst post-war real estate recession and an all-out recession.
It goes without saying that families have been hit hard on disposable incomes across the country. Unleaded gasoline prices may have stabilized between 1.60 and 1.70 over the past month, but energy and food prices are skyrocketing overall.
ING economists James Knightley and James Smith say that reflects a 54% increase in monthly gas and electricity rates since early April after regulator Ofgems lifted the energy price cap.
The Bank of England expects inflation to rise above 10% after summer, citing rising energy costs. We’re not sure it’s going to get that bad, but again we’re surprised by the continued uptrend in inflation, the statement said.
Data for the labor market will be released on Tuesday, the day before inflation figures come out.
Restaurants are more likely to close at lunchtime than hire a second chef for a much higher wage. Tony Wilson, IES
Central bank officials are most concerned about a wage increase of around 5.4% over the past few months and the extent to which workers are demanding a monthly income increase to keep pace with rising inflation next year. This is a very dreaded harbinger of wage/inflationary inflation that could push inflation further in the years to come.
Some members of the Banks Monetary Policy Committee (MPC) believe that wage demands could surge and employers will have to raise prices not only this year, but next year, and perhaps even 2024 to cover higher production costs.
But at least two of the nine powerful committees said at a meeting earlier this month that they thought wage growth was already stagnant.
But Tony Wilson, director of the Institute for Employment Studies think tank, believes that tight labor markets will keep wage growth steady. The UK has record levels of vacancies and a growing proportion of employees who change jobs make it difficult for employers to fill vacancies.
But we know that hundreds of thousands of companies are operating at very low margins and customers are tightening their belts. This limits the extent to which you can pay higher wages. Rather than raising prices, these firms are more likely to cut production or lower service levels.
Wilson said restaurants are more likely to close at lunchtime than hire a second chef for a much higher wage.
The unemployment rate is expected to remain low at 3.8%, the same as the previous month, but the figure is flattering by 500,000 workers, most of whom are over 50 who have left the labor market in the last 18 months.
And since 2019, due to the Brexit effect, around 500,000 expatriates who were expected to operate in the UK labor market have turned down employers.
Wilson said this combined one-million worker gap is important when trying to explain the state of the UK job market compared to other economies of scale. For example, in France, where participation rates through the pandemic have remained the same, there is no loss of skilled workers and wages are being kept in check.
Wilson said the government should focus its efforts on helping economically inactive people return to work. Instead, the only policy action ended at the bank, with talks about raising rates to quell inflation when the MPC meets in June and August.
But Paul Dales, chief UK economist at consulting firm Capital Economics, said his predictions that rates could rise from 1% to as much as 3% now risk being overly aggressive.
One of the most important factors is the prospect of a recession. The economy contracted 0.1% in March after flattening in February. A recession may already be brewing.
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