UK inflation remained high at 9.9 per cent for the 12 months to August, keeping it at its highest level for 40 years as the cost of living crisis continues.
The situation is likely to get worse before it improves, with the Bank of England (BoE) forecasting inflation to pass 13 percent in the final quarter of this year, despite falling slightly from July’s 10.1 percent in response to volatile fuel prices.
The current spike means prices of everyday items such as staple food, fuel, clothes, shoes and furniture have risen over the past year, a development that hits low-income families the most at a time when they can least afford them.
Charities have already noted an increase in sales and demand for second-hand clothing in response to rising production costs that have driven high street fashion to its price level since 1988, when records began.
“The easing in the annual inflation rate in August 2022 reflects mainly a fall in motor fuel prices in the transport part of the index,” the Office for National Statistics (ONS) said on 14 September.
“Smaller, partially offsetting, upward impacts come from price increases for food and non-alcoholic beverages, miscellaneous goods and services, and clothing and footwear.”
Rising costs, staff shortages and supply chain disruptions are affecting both big-name retail brands and small businesses alike, leaving them with little choice, as they see it, but to pass on price increases to consumers to ensure their own survival. to deliver.
ONS data meanwhile revealed the extent to which UK wages have stagnated, with real wages falling by 3 per cent in June between April, as rising spending elsewhere boosted cash terms.
Private sector workers saw their pay rise 5.9 percent before inflation — more than three times faster than their public sector counterparts who received a 1.8 percent raise.
The figures set the new Liz Truss government on course for further clashes with public servants including nurses, doctors, lawyers and teachers who have seen their incomes drop in value this year, adding to the pain of a decade of falling real wages.
“The scale of this pay pain is even deeper than official figures suggest, as estimates of salary growth are still artificially inflated by the effects of the furlough scheme last year,” said Nye Cominetti, senior economist at the Resolution Foundation.
“The squeeze comes despite strong wage growth and a lively job market, wage settlements strengthening slightly and nearly a million people moving jobs over the past three months.”
Mrs Truss’s first move as prime minister was to freeze Ofgem’s energy price cap, the maximum amount the utility company can charge the average customer of £2,500 per year for two years, giving some relief to households facing another 80 per cent increase. in their bills from October 1 in response to the rise in global gas prices.
If the planned increase in the cap had been allowed to go ahead by the regulator, it would have risen from £1,971 to £3,549 for a household on average consumption, with those on prepayment meters charged more.
The new prime minister has pledged to honor former chancellor Rishi Sunak’s package of support measures for British families announced back in February as part of an effort to calm the “sting” of the rocketing bill.
But after a summer of inaction, the Tory leadership contest to succeed Boris Johnson dragged on while the incumbent chose to go on several holidays rather than come to the rescue of voters, the nation remains in a state of crisis.
British consumers face flat wages and higher costs for everything from food, clothes, petrol, heating, housing and rent while rising interest rates mean borrowing costs are rising too, recently rising from another 0.5 per cent to 2.25 per cent. As the BoE’s Monetary Policy Committee moved to try to put the brakes on inflation.
While the current outlook looks bleak indeed, consumers are encouraged to view the current adversity, which will eventually pass, as an opportunity to reassess their personal circumstances, streamline their finances and cut any unavoidable routine outgoings.
“The most important thing savers can do now is to assess how this environment will affect their finances, where they are holding their savings and make the necessary adjustments,” said Colin Dyer, client director at Abrdn Financial Planning.
“For example, holding a significant amount of cash in a deposit account effectively loses money in an inflationary environment, so depending on risk appetite, an investment in stocks and shares ISA may offer higher returns than if invested over the long term.”