Earnings fail to keep pace with inflation, despite UK unemployment dropping back to pre-pandemic levels. Cost-of-living pressures continue to impact households as inflation hits a 30-year high.
- Inflation hits 30 year high, rising to 7per cent
- 12per cent interest rate on student loans in England
- Average petrol prices increased by 12.6p per litre between February and March
- But, UK unemployment has dropped back to its pre-pandemic level
UK inflation rose from 6.2per cent in February to 7per cent in March, the highest rate since 1992.
As prices rise faster than wages, the Government is facing mounting pressure to do more to help those struggling.
Analysts had expected inflation to rise by 6.7per cent and warn that cost-of-living pressures are set to increase as energy and fuel prices continue to rise caused by the ongoing conflict in Ukraine and the reopening of the global economy post-lockdown.
Senior Economist at the Resolution Foundation think tank, Jack Leslie warned the cost-of-living crisis would “continue to worsen before it starts to ease at some point next year”.
A social study by University College London found more people were now worried about their finances (38% of 28,495 respondents) than catching Covid-19 (33%).
Fuel prices having greatest impact:
According to figures published today by the Office for National Statistics (ONS), fuel had the biggest impact on the inflation rate, with average petrol prices rising by 12.6p per litre between February and March. This represents the largest monthly impact since records began in 1990.
Diesel prices also increased by 18.8p per litre this year, compared with a rise of 3.5p per litre at the same time last year.
Students to pay more:
The Institute for Fiscal Studies (IFS) warned today that high inflation is set to cause a “rollercoaster” for student loans. Their latest research suggests that from this Autumn, students and graduates in England will have interest on their loans leap from 4.5 per cent to 12 per cent.
The rate will dip in March 2023, when a cap on the interest will kick in, but the long-term impact on repayments will not be large. The student loan interest rate in England is calculated by adding 3 per cent to the retail price index (RPI).
For students starting degree courses from 2023, the rate will be fixed at a lower level.
The workforce smaller than it was pre-Covid:
Despite the number of job openings rising to hit a new record of 1.29 million in the three months to March, the employment rate was unchanged at 75.5 per cent in the three months to February, well short of its pre-pandemic level.
This means that four in every hundred vacancies remain unfilled.
Analysts believe this is largely due to large numbers of people choosing not to work. The inactivity rate rose to 21.4 per cent, up 0.2 per cent on the previous month. Evidence suggests this was due to people having caring responsibilities, early retirement, or suffering long-term sickness.
The British Chamber of Commerce highlighted that there has been a “hiring crunch” facing firms for many years.
Senior economist at the Resolution Foundation, Nye Cominetti said “Soaring inflation is casting a big shadow over an otherwise buoyant labour market”.
Monetary policymakers are left with a difficult question, what do they do to fix a tightening labour market where wages are failing to keep pace with rising prices.
For an embattled Chancellor, the future looks bleak. Whilst a Council Tax rebate is not to be scoffed at, the honest answer is that there is very little that he can do. Borrowing has already reached levels not seen since the Second World War and his hands are tied in terms of offering more support as the economic outlook looks weaker for every day that the Ukrainian crisis rolls on.
For the public, experts say there are little options left except to budget more. This will have an obvious economic impact, including a hit on the recovering hospitality sector. Most importantly, they also highlight the importance of proactively seeking debt support. Given local government cuts that funded local debt management services, this is hard to come by in many communities.
This is going to be a difficult year, with more problems to come. It is imperative that the Government “strains every sinew” to help struggling households – particularly the most vulnerable. What we need is some fresh thinking – otherwise warnings of civil unrest will come true.