could feel even worse done by this week when official inflation figures show just how fast the cost of living is rising. Economists are forecasting to 9.1% in April.
If the pundits are right, the consumer prices index will be at its highest level since 1990, when the UK was struggling with one of its worst postwar property slumps and a full-blown recession.
Not that families need telling – disposable incomes across the country have been hit hard. The price of unleaded petrol may have steadied at between £1.60 and £1.70 in the past month, but energy bills and food prices are soaring across the board.
James Knightley and James Smith, economists at ING, said the month-on-month rise would reflect a 54% jump in household gas and electricity bills since the beginning of April, following regulator Ofgem’s lifting of energy price cap.
The, citing rising energy costs, has forecast a rise in inflation to above 10% after the summer. “We are less sure that it will get as bad as that, but then again inflation has consistently surprised to the upside,” it said in a statement.
Data on the jobs market will be published on Tuesday, a day before the inflation figures.
Central bank officials are most worried byof about 5.4%, and the extent to which workers will demand increases in their monthly earnings to keep pace with rising inflation over the next year. This is the much-feared precursor to a wage/price spiral that could push inflation higher for years to come.
Some members of the Bank’s monetary policy committee (MPC) believe wage demands could rocket – and that employers will be forced to push up prices to recoup the higher costs of production – not just this year, but next year too, and possibly through into 2024.
But at least two of the nine-strong committee indicated at their meeting earlier this month that they believed the opposite – that wages growth had already plateaued.
However, Tony Wilson, director of the Institute for Employment Studies thinktank, believes the tightness of the labour market will keep wage growth robust. The UK has record levels of vacancies and a rising proportion of staff moving jobs – which makes it difficult for employers to fill vacant posts.
However, hundreds of thousands of firms are operating with very slim profit margins and know that their customers are tightening their belts: this limits their scope to pay higher wages. These firms are likely to cut back production or reduce the level of service rather than raise prices.
“A restaurant is more likely to stop opening at lunchtimes than take on a second chef on much higher wages,” Wilson said.
Unemployment is forecast to remain low, at 3.8% – the same as the previous month – though this figure is flattered by the 500,000 workers, mostly over-50s, who have quit the labour market in the past 18 months.
And since 2019, the Brexit effect has denied employers some 500,000 foreign nationals who had been expected to become active in the UK labour market.
This combined million-worker gap was important when trying to explain the state of the UK jobs market compared with other similar-sized economies, said Wilson. For instance, in France, where the participation rate through the pandemic has stayed the same, there is no loss of skilled workers and wages remain in check.
Wilson said the government should focus its efforts on helping those who had become economically inactive to return to work. Instead the only policy action is over at the Bank, where there is talk of interest-rate rises to quell inflation when the MPC meets in June and August.
However Paul Dales, chief UK economist at consultancy Capital, said his forecast that the base rate could rise from 1% to as high as 3% now looked in danger of being overly aggressive.
One overriding factor is the prospect of a recession.after flatlining in February. A recession may already be brewing.