ASHFORD, England- After work in the evenings, Nicola Frape turns off the heating and huddles under a blanket with her daughter and a hot water bottle. Adding a layer costs nothing, she says, but leaving the boiler on drains her inflation-hit bank account.
Treats such as cinema tickets have been scrapped as the 38 year-old care worker’s food and fuel bills climb, and she has tried to cancel her pay-TV service but cannot get through to her provider: she assumes everyone is doing the same thing.
Frape is one of millions of normally financially comfortable Britons who are facing a cost-of-living crisis as a double-whammy of accelerating inflation – driven by soaring energy bills – and tax increases kicks in this year.
Fast-rising prices are inflicting what the Bank of England says will be the biggest one-year fall in disposable income, adjusted for inflation, in at least 30 years.
After a decade of stagnant living standards – and in stark contrast to promises of a high-wage economy by Prime Minister Boris Johnson – Frape, like others, is bracing for a further hit to her finances in April.
That is when energy bills are due to jump 54 percent to around 2,000 pounds ($2,723) a year per household – only some of which will be offset by emergency government support – and when social security contributions paid by workers are also due to increase, all against the backdrop of rising interest rates.
Frape says spending on food and petrol has already risen by 20 pounds a week. She and her 14-year old daughter have had to limit car journeys to help accumulate some savings for April. The little flags pinned to a wall map that show their previous holiday destinations are unlikely to be added to this year.
“There’s just too much going up at once,” Frape told Reuters in her immaculate home in Ashford, a town in south-east England, not far from the entrance to the Channel Tunnel.
“The pressure is just going to be even worse in April.”
With economies around the world rebounding from coronavirus lockdowns, prices for everything from food and clothes to haircuts and rent, as well as energy are going up, fuelled by resurgent demand and shortages due to supply chain disruptions.
Accurate national comparisons of changes in living standards are hard to make but concerns about inflation are emerging as a big factor in elections including France’s presidential race in April and US midterm elections in November.
Britain’s consumer price inflation rate hit 5.5 percent in the 12 months to January, the highest since 1992 when the economy was feeling the after-effects of a late-1980s spending boom driven by Margaret Thatcher’s tax cuts and big pay deals.
The CPI is set to top 7 percent in April. The BoE thinks it will then start to slow but will still be above 5 percent in a year’s time.
Inflation in the United States has already surpassed 7 percent to reach its highest since the early 1980s, and in the euro zone it hit a record 5.1 percent in January.
Frape, who works as housekeeper in a care home and has been in the industry since she was 18, is being urged by colleagues as their union representative to demand a pay rise above April’s government-mandated 6.6 percent increase in the minimum wage.
Wage demand pressure, and the risk that it drives a self-perpetuating high inflation problem, is a big worry for the BoE.
Governor Andrew Bailey drew howls of protests from unions this month when he called for restraint in pay talks.
The BoE thinks underlying wage growth will hit almost 5 percent this year before easing.
Lower-income households are feeling the inflation pinch harder than higher earners, many of whom made big savings during the pandemic on commuting, holidays and going out.
The National Institute of Economic and Social Research, a think tank, estimates the combination of April’s payroll tax increase and higher inflation could drive a 30 percent rise in destitution in the world’s fifth-largest economy.
The Trussell Trust, which supports a network of food banks, said delivery of food parcels rose 11 percent between April and September last year compared with the same period of 2019, and hit one of its highest ever levels in December.
At Dad’s House, a food bank in west London, some people who used to donate are now among the 500 families who get support each week. Jackie Gordon, 52, said she often goes without food. “I have to pay my bills,” she said. “I’m behind with my rent and I don’t want to get evicted.”
The government is hoping the cost-of-living squeeze, while sharp, will be short-lived.
It will spread some of the fuel price increase over the coming years and cut a tax for people in lower-value properties to provide support through 2022. — Reuters