Rishi Sunak warns of tough few months as inflation soarson May 18, 2022 at 2:44 pm

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The chancellor says it won’t be easy to tackle cost of living crisis as inflation hits 40-year high.

A man and his baby

Image source, Getty Images

Rishi Sunak is to warn that the next few months “will be tough” after it was revealed prices are rising at the fastest rate for 40 years.

In a speech to businesses later, the chancellor will admit he “cannot pretend” it will be easy to cut the cost of living crunch for families.

It comes as a think tank said the poorest were being hit hardest by steep rises in energy bills.

Households are also dealing with record fuel costs and surging food prices.

UK inflation, the rate at which prices rise, jumped to 9% in the 12 months to April, up from 7% in March, the highest level it has reached since 1982.

Inflation is the rate at which prices are rising. For example, if a bottle of milk costs £1 and that rises by 9p, then milk inflation is 9%.

April’s inflation high figure came as millions of people saw an unprecedented £700-a-year increase in energy costs last month.

But at the annual CBI dinner later, the chancellor will tell businesses: “There is no measure any government could take, no law we could pass, that can make these global forces disappear overnight.

“The next few months will be tough. But where we can act, we will.”

He is expected to call on businesses to boost investment and training in order to grow the economy and help ease the cost of living crunch, pledging to cut taxes on firms in return.

Inflation chart

Around three quarters of the rise in inflation in April came from higher electricity and gas bills, according to the Office for National Statistics (ONS).

A higher energy price cap – which is the maximum price per unit that suppliers can charge customers – kicked in last month, meaning homes using a typical amount of gas and electricity are now paying £1,971 per year on average.

Fuel prices have also surged, with the RAC motoring group on Wednesday warning that petrol and diesel prices have hit new records of £1.68 and £1.81 per litre respectively.

The prices of most other goods and services have risen as well, the ONS said, while wages are failing to keep pace with inflation and falling in real terms.

Up until now households of all incomes had faced similar rates of inflation, but the poorest are now being hit hardest by rising prices because they have to spend far more of their household budgets on gas and electricity, the Institute for Fiscal Studies said.

Retail Economics, a research consultancy, said the poorest people were experiencing a drop of £59 per month in their discretionary spending budgets compared to this time last year.

Citizens Advice said “the warning lights could not be flashing brighter” and the government needed to offer households more support, while debt charities urged anyone finding it difficult to pay bills to seek help earlier rather than later in the year.

“There are desperate stories behind these figures,” said Dame Clare Moriarty, chief executive of Citizens Advice. “People washing in their kitchen sinks because they can’t afford a hot shower; parents skipping meals to feed their kids; disabled people who can’t afford to use vital equipment because of soaring energy bills.”

‘I can’t do much more’

Cheryl Holmes

Health analyst Cheryl Holmes, a mother-of-two, said she was trying to keep her living costs “as low as possible” by spending less on food and clothes, and cancelling TV subscriptions.

“I’ve already for several years been turning the lights off in each room, setting the heating on a timer, making sure I’m using a full dishwasher and washing machine and I’m running out of ideas.

“It’s a battle and it seems like there’s not really much more that I can do.”

The Bank of England has warned that the UK’s cost crunch could leave the country on the brink of recession, with inflation peaking at over 10% later this year amid further expected rises in energy bills.

The rising cost of living is already seeing people spending less money and cutting down on car journeys due to high fuel costs. And it’s impacting the economy, which shrank in March.

The Bank has raised interest rates four times since December to try to cool prices, but MPs have accused it of not doing enough.

Chart showing inflation of UK and other countries

But the UK now has the highest rate of inflation (9%) of any G7 country, including Germany (7.4%) and France (4.8%).

At Prime Minister’s Questions, Labour leader Sir Keir Starmer pressed the prime minister to bring in a one-off tax on oil and gas profits, arguing it would raise “billions” to help.

Boris Johnson, who has so far refused to back the idea, said he would “look at all the measures” needed to help people struggling with rising bills.

He added that the government was “not in principle in favour of higher taxation”.

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