Towards 9% inflation?
In its spring report, the Office for Budget Responsibility (OBR) lowered its 2022 growth forecast to 3.8% from 6%. Moreover, it esteems that the annual rate of inflation, which is already above 6%, could peak at 9% in the months ahead. Once again, energy is the driving force behind escalating prices, and the energy bill rose sharply in April due to the upward revision of regulated gas and electricity prices (+54%). Inflation is also maintained by persistent labour shortages in key sectors, such as agriculture and transportation, due not only to the Covid-19 pandemic, but also to Brexit.
The loss of purchasing power will accentuate (chart 2) for UK households, whose real revenues have begun to decline. For Rishi Sunak, Chancellor of the Exchequer, the time for “whatever the cost” as passed. Although the new finance bill that took effect in April took a more restrictive turn1, a few corrective measures were nonetheless announced: the fuel tax will be reduced by 5 pence per litter (EUR 0.06), the VAT rate on solar panels will be 0%, and the Household Support Fund will be doubled. According to OBR, however, these measures are far from offsetting the increase in fiscal pressure programmed in 2022 and beyond.