Analysing The Political Economy

Inflation to hits households by £2,320 - and then get worse

According to the Office for National Statistics economic growth slowed in February. This was due to the contraction of the production and construction sectors just as inflation grips the economy.

Economists had forecast that GDP would slow to 0.3 per cent growth but the reality ended up being worse as it slowed more than expected to 0.1 per cent month-on-month in February, after a 0.8 per cent rise in January.

The CBI commented – “Following the bounce at the start of the year, it’s no surprise that economic growth slowed in February. Near-term challenges to the outlook have ramped up since, with a growing cost-of-living crunch set to weigh on growth.”

Although the economy was 1.5 per cent larger in February than it was two years earlier, (pre-pandemic) other ominous signs continue to make uncomfortable reading for the government.

The Centre for Economics and Business Research(CEBR), has now stated that British households will be on average £2,320 worse off this year as wages fail to keep pace with rising energy and fuel costs. This represents the biggest fall in living standards since records began.

The average household will pay 54 per cent more for their energy bills than six months ago and 73 per cent more than a year ago. That increase will drive a 3 per cent fall in real disposable incomes this year, the CEBR says, equivalent to a £2,320 hit per household.

The Office for Budget Responsibility has said that rising inflation would result in real disposable incomes falling by 2.2 per cent in 2022-23, but that now looks to be rather optimistic. However, if inflation rises, as some economists are now forecasting, to 9 per cent or even 10 per cent, the fall in real disposable incomes will get worse. In addition, there are now fears of a looming recession.



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