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Unions warn cost of living crisis has become ‘living nightmare’
Unions are warning that the cost-of-living crisis has become a “living nightmare” for workers as the soaring rate of inflation is set to fuel more strikes.
Unite general secretary Sharon Graham said inflation has reached “new perilous levels” for workers and their families.
Yesterday, real wages fell to the lowest on record, So if today’s figures prove anything it’s that wages are not driving inflation.
Since the pandemic, the FTSE top 350 have seen profits soar by 43%. Britain has a profiteering crisis – when is something going to be done about that?
Unison assistant general secretary Jon Richards said:
The cost-of-living crisis has become a living nightmare for millions of working people.
Wages are slumping at a record rate while prices and bills shoot up. But the government and those angling to be the next PM appear indifferent to the plight of those struggling to make ends meet.
Ministers are deluded if they think workers can put up with yet more misery. Above-inflation pay rises are essential to rescue families on the brink.
Union says it is the UK’s largest union with more than 1.3 million members providing public services in education, local government, the NHS, police service and energy. They are employed in the public, voluntary and private sectors.
TUC general secretary Frances O’Grady said:
Families are facing a cost-of-living emergency. Ministers must cancel the catastrophic rise to energy bills this autumn, and to reduce future inflationary pressures and make energy more affordable, they should bring energy retail into public ownership.
To help people with the cost of living this winter, Government should bring forward increases to universal credit and the national minimum wage.
Companies that were supported by the taxpayer through the pandemic must step up to help too. They should show profit restraint to help keep prices down and to prioritise pay rises for staff.
Industrial disputes have spread across the economy, from barristers to rail workers, with unions attempting to negotiate pay rises close to inflation. A fresh round of rail strikes will start on Thursday, BT, Royal Mail and Post Office workers will walk out from next week, and health workers including nurses are to start voting on strikes over pay.
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Stock markets are drifting lower, with the FTSE 100 index inn London down 30 points, or 0.4%, at 7,505. Germany’s Dax has tumbled 1.1%, France’s CAC has lost 0.56% and Italy’s FTSE MiB has shed 0.36%.
The pound is also struggling, as the surge in inflation to 10.1% triggered fears of a sharp economic downturn. It has dipped 0.2% against the dollar to $1.2067 and is down 0.1% against the euro at €1.1875.
As inflation rockets, Liz Truss has accused the Bank of England of having been too slow to increase interest rates.
Costas Milas, professor at the University of Liverpool’s School of Management, argues in this blog post that, 25 years since the Bank of England was given operational independence, it makes sense to revisit the issue of the bank’s mandate and look at things that can get better, as long as changes do not compromise the bank’s independence.
(Note: the blog on the London School of Economics’ website was written before today’s rise in inflation to 10.1%.)
He looks at alternatives to the 2% symmetrical inflation target, such as targeting nominal GDP growth (ie. Real GDP growth plus inflation), or changing the make-up of the monetary policy committee to include more external members to reduce group think.
Liz Truss is not telling us what she has in mind. This is problematic. She has promised tax cuts from “day one” (immediately after 5 September) largely through extra borrowing. Notice that the BoE is currently planning to start selling UK government bonds (proceed with “quantitative tightening”, that is) before the end of September.
The very selling of debt by the BoE and simultaneously by the government will push long-term interest rates much higher. In fact, borrowing might turn out to be even more expensive if financial markets take the view that Liz Truss and her ideas of “rewriting” monetary policy is a direct threat to the BoE’s independence.
In other words, even higher interest rates (as a result of financial markets viewing BoE’s independence at threat) risk making a looming recession even worse. Quite frankly, the new prime minister (whether Liz Truss or Rishi Sunak) and BoE governor Andrew Bailey need to sit down and work together to counteract the adverse consequences of the looming recession.
UK credit card spending jumps 33%
Credit card spending has shot up by a third as more people turn to borrowing cash amid the cost-of-living crunch.
UK credit card holders spent just under £20bn in May, a 33% jump in the total spend compared to the same month last year, according to official figures from trade body UK Finance.
Debt also climbed, with outstanding balances on credit card accounts growing nearly 10% in the year to May. The number of credit card transactions rose by more than a quarter year-on-year, to 357m payments in May by UK cardholders both here and abroad. Total debit card spending edged up by just 1% compared to the same period last year.
Credit card spending has been going up steadily since the start of the year, coinciding with the soaring cost of utility bills and double-digit food and drink inflation.
The data comes as inflation spilled over into double figures in July, hitting 10.1%, driven by big price rises across food and staple items such as toilet roll, as well as fuel, electricity & gas, and rents.
Real wages have declined, with UK workers seeing their pay lag behind inflation at record levels over the three months to June. Inflation is set to get even worse, peaking at 13.3% in October, according to Bank of England forecasts.
The UK is expected to go into recession in the fourth quarter and continuing until the final three months of 2023, the Bank said earlier this month.
Inflation is largely being driven by spiking energy bills, with another energy price cap rise of around 85% forecast for October. Bills are then likely to go up even further in January, experts say, pushing the average annual household bill to more than £4,200.
Today’s inflation figures make grim reading.
Elsewhere, the eurozone economy grew by 0.6% in the second quarter from the first, slightly lower than the 0.7% growth reported last month.
Ricardo Amaro, senior economist at Oxford Economics, said:
This is still a solid outturn which leaves the GDP figures painting a flattering picture of growth dynamics in H1 2022 as today’s release confirmed GDP rose by a solid 0.5% q/q in Q1 – in this case boosted by known distortions to Irish GDP. But we think growth will slow in the second half of the year and into 2023, with our latest forecasts anticipating near-stagnation in Q3 to be followed by a modest contraction in Q4 and almost no growth at the start of 2023.
The labour market also recorded healthy improvement in Q2. Eurozone employment rose by 0.3% q/q, underpinning a further drop in the unemployment rate to an all-time low of 6.6% in Q2. But here too, we think improvement will stall in the coming months as softening in the wider economy also impacts the labour market.
Children’s doctors call for urgent government action
Children’s doctors are calling for urgent government action as inflation sky rockets. As more and more children are thrown into poverty, they are predicting increased poor nutrition, respiratory illnesses and mental health issues that will have life-long health and well-being impacts for children and their families (with knock-on effects on the economy, one might add).
Lower income families are now facing the most serious cost of living crisis in decades. The Royal College of Paediatrics and Child Health said:
We ask that the UK government continues to support children and their families by urgently bringing social security packages in line with current energy costs and inflation. We also ask that both Conservative party leadership candidates urgently address how they will support families during the current crisis. Plans need to be in place now, not in late September.
One paediatrician told the RCPCH:
My patient group tends to be largely from low income, vulnerable families. They have been hit disproportionately hard by the rising cost of living, which is a much larger proportion of their income than mine. They are particularly affected by rising costs of fuel to attend numerous appointments, power to run necessary equipment and nutritious food for their children.
Mike McKean, RCPCH vice-president for policy, said:
As we move into the winter months more and more families will be faced with impossible decisions. Pay their bills or feed their families? We are already hearing reports of parents skipping meals to feed their children, missed medical appointments due to high transport costs and children forced to live in cold, damp conditions. This is not the marker of an affluent nation such as ours.
Across the UK approximately 30% of all children are living in poverty — four million in total. This is already far too high, yet projections indicate this number will reach five million by 2030.
Worryingly, these estimates were made before the rate of inflation rose to 8% and before the most recent predictions for the upcoming energy price cap. The UK faces a perfect storm of soaring energy bills, rising taxes and increasing prices. I am fearful of what will happen this winter if this crisis is not urgently addressed.
UK bond market ‘inversion’ flashes warning signs
Short-term UK government bonds sold off sharply after the inflation surge, which cemented expectations for a second half-point rate hike from the Bank of England next month.
The rise in inflation to 10.1% piled pressure on the central bank to hike rates aggressively to bring inflation down, increasing the risk of a sharper economic slowdown. The Bank has already forecast a recession lasting longer than a year.
Sterling spiked briefly against the dollar before falling back, as the larger-than-expected jump in inflation deepened fears around Britain’s economic outlook.
Traders are now pricing in a further 200 basis points of rate hikes by May, taking the Bank Rate to 3.75%.
Two-year gilts sold off, pushing their yields (the returns on the bonds) sharply higher to 2.39%. Longer-term bonds also sold off but less so, and the yield on the 10-year bond rose to 2.24%.
When two-year yields move above their 10-year counterparts, this is called an inversion of the yield curve. Investors normally demand higher borrowing costs for longer-rated bonds as the risk of buying something that matures years from now is higher.
This is the biggest inversion in the yield curve since the 2008 global financial crisis – and signals an economic warning. It suggests investors are anticipating sharp rises in interest rates in the coming months, which are expected to trigger a slump in economic output.
UK house price gains slow sharply – ONS
House price inflation in the UK has slowed sharply, although the average price hit a record, and rents rose at the fastest rate since 2016, according to the latest data from the Office for National Statistics.
The average UK house price was £286,000 in June, which is £20,000 higher than the same month in 2021. This represented an increase of 7.8% over the year to June 2022, down from 12.8% in the year to May 2022.
As buyers rush to get in for the summer, house prices increased 7.8% in June making the AVG house price at the time worth £286,000. Despite this inc the rate of growth slowed considerably from the 12.8% increase seen in May @ONS pic.twitter.com/Z2lvPLvgL5
— Emma Fildes (@emmafildes) August 17, 2022
Despite house prices increasing between May and June for the eighth consecutive month, annual house price inflation has slowed due to the rise in prices seen in June 2021, which were the result of tax break changes. The temporary changes to stamp duty, and land transaction tax last year may have allowed sellers to request higher prices as buyers’ overall costs were reduced, the ONS said.
Average house prices increased over the year in England to £305,000 (7.3%), in Wales to £213,000 (8.6%), in Scotland to £192,000 (11.6%) and in Northern Ireland to £169,000 (9.6%).
Private rents paid by tenants in the UK increased by 3.2% in the 12 months to July 2022, the fastest annual growth rate since this series began in January 2016.
Unions warn cost of living crisis has become ‘living nightmare’
Unions are warning that the cost-of-living crisis has become a “living nightmare” for workers as the soaring rate of inflation is set to fuel more strikes.
Unite general secretary Sharon Graham said inflation has reached “new perilous levels” for workers and their families.
Yesterday, real wages fell to the lowest on record, So if today’s figures prove anything it’s that wages are not driving inflation.
Since the pandemic, the FTSE top 350 have seen profits soar by 43%. Britain has a profiteering crisis – when is something going to be done about that?
Unison assistant general secretary Jon Richards said:
The cost-of-living crisis has become a living nightmare for millions of working people.
Wages are slumping at a record rate while prices and bills shoot up. But the government and those angling to be the next PM appear indifferent to the plight of those struggling to make ends meet.
Ministers are deluded if they think workers can put up with yet more misery. Above-inflation pay rises are essential to rescue families on the brink.
Union says it is the UK’s largest union with more than 1.3 million members providing public services in education, local government, the NHS, police service and energy. They are employed in the public, voluntary and private sectors.
TUC general secretary Frances O’Grady said:
Families are facing a cost-of-living emergency. Ministers must cancel the catastrophic rise to energy bills this autumn, and to reduce future inflationary pressures and make energy more affordable, they should bring energy retail into public ownership.
To help people with the cost of living this winter, Government should bring forward increases to universal credit and the national minimum wage.
Companies that were supported by the taxpayer through the pandemic must step up to help too. They should show profit restraint to help keep prices down and to prioritise pay rises for staff.
Industrial disputes have spread across the economy, from barristers to rail workers, with unions attempting to negotiate pay rises close to inflation. A fresh round of rail strikes will start on Thursday, BT, Royal Mail and Post Office workers will walk out from next week, and health workers including nurses are to start voting on strikes over pay.
Like others, Dr Miatta Fahnbulleh, an economist and chief executive of the New Economics Foundation, is calling for energy bills to be frozen this winter, amongst other things.
📈 #Inflation has hit 10.1% as prices continue to rise.
This spike in prices is all the more painful because it is hitting at a time when:
– Living standards have been squeezed for over a decade, leaving people with little cushion to absorb this
1/5
— Miatta Fahnbulleh (@Miatsf) August 17, 2022
– Millions of families were already unable to make ends meet because our social safety net has been ripped up, and
– Public services are on their knees after years of underinvestment.
2/5
— Miatta Fahnbulleh (@Miatsf) August 17, 2022
Leaving families & the economy to languish won’t prevent inflation getting worse, & risks a deep recession which will scar our economy.
Govt should urgently:
1️⃣ Increase the national #livingwage to reflect the #costofliving & support workers to negotiate fair wage deals3/5
— Miatta Fahnbulleh (@Miatsf) August 17, 2022
2️⃣ Boost benefits by £17bn to restore our safety net, & combine that with direct payments for families on low-modest incomes to support with the cost of living.
3️⃣ Increase the #WindfallTax to 20%, which would bring in £14bn a year.
4/5
— Miatta Fahnbulleh (@Miatsf) August 17, 2022
4️⃣ Freeze #energybills whist reforming the energy market by investing in #retrofitting millions of homes, breaking up the monopoly power of the big providers, and flooding the system with cheaper renewables from by co-operative companies that the public own.
5/5
— Miatta Fahnbulleh (@Miatsf) August 17, 2022
The pound briefly spiked against the dollar, as the surprise surge in inflation to 10.1% cemented expectations of a half-point rate hike from the Bank of England next month.
Mike Owens, global sales trader at Saxo Markets, said:
The immediate market reaction was a 20 pips rally in sterling-dollar on the signal more will need to be done by the Bank of England to tighten monetary conditions, with a 0.5% rate rise in September now being fully priced in by markets. The spike higher in sterling has already begun to fade and the double bottom formed at $1.20 this month remains as key support level.
Sterling is now little changed at $1.2091 versus the dollar, and trading 0.16% higher against the euro at €1.1907.
Lord Rose urges ‘targeted action’ for ‘those who need it most’
Lord Rose, the chairman of Asda and former boss of Marks & Spencer, and a Conservative peer, is on radio 4 now and advocated “targeted action” for “those who need it most”. He stressed that inflation must be “killed” because it’s “pernicious” and “erodes wealth over time”.
We have been very, very slow in recognising this train coming down the tunnel and it’s now here, and it’s not about to run us over, it’s [already] run quite a lot of people over, and we have to deal with the aftermath of that. 10.1% this morning and it’s going to go up further.
The first thing that I’d like to hear from people, and in particular those who are leaders, is to say: Look, this is a serious problem.
It’s not a serious problem, it’s a crisis, number one. Number two, it’s a crisis which is not about to go away.
Number three, that you’re going to have to live with this. Number four, we can’t help everybody, number five, we can help some people and this is what we’re going to do.
Nothing is happening, we are sitting here into the second, third, fourth month into this crisis and we’re still waiting to see what action will be taken. It’s horrifying.
I would like to see us looking after those who need it most.
The poorest need targeted help, he said.
Some money has gone to them, some more money is going to them but it will not be enough.
In a dig at Sajid Javid, he said:
What more facts is he waiting for? We have the facts, we need action.
I don’t believe you can grow your way out of inflation… We need to kill inflation first and of course we need to sow the seeds of growth, but you can’t have both at the same time and one needs to come before the other.
It’s going to be painful for everybody… It picks on the poorest hardest but we have to deal with it, we can’t ignore it.
It’s inevitable that interest rates have to go up. That will cause some short-term pain but you will only get the long-term gain if you have short-term pain.
Liz Truss, who is the favourite to succeed Boris Johnson as prime minister, has pledged to cut taxes but former chancellor Rishi Sunak, the other contender, has said this should only happen once inflation is under control. Rose echoed those comments.
As inflation soars to more than five times the Bank of England’s 2% target, it will be forced to raise interest rates again, at a time when the UK is expected to go into recession.
Debapratim De, senior economist at Deloitte, said:
With inflation above 10% and widely expected to rise further as energy bills increase, base interest rates look fairly low at 1.75%. We expect swift action from the Bank of England with the base rate potentially doubling by this time next year.
As the Bank moves aggressively to crush double-digit inflation, we are forecasting a 1.6% contraction in activity between this autumn and the next. This is a much smaller contraction than the pandemic but, with a sharp squeeze on consumer spending power and likely rise in unemployment, will feel significantly disruptive.
Urvish Patel, economist at the National Institute of Economic and Social Research, a respected think tank, noted:
Underlying inflation increased in all of the 12 UK regions in July, although inflation in the East Midlands is now the highest at 8%.
Rachel Reeves, the shadow chancellor, said soaring prices were leaving families worried about how to make ends meet in the run-up to a difficult winter.
People are worried sick, and while the Tories are busy fighting and ignoring the scale of this crisis. Only Labour can give Britain the fresh start it needs.
Sajid Javid: ‘We need to cut taxes to get the economy going’
Sajid Javid, a former chancellor and a supporter of Liz Truss, the frontrunner to become the next prime minister, said he wasn’t shocked by the figures because we had recently heard the Bank of England’s forecast. He said on BBC radio 4’s Today programme:
It underlines the need to go forward with a credible economic plan that tackles inflation of course and the cost of living challenges which are immense but also a long-term plan for growth and that is one of the key reasons why I’m backing Liz Truss.
He said it’s a global problem, but things can be done at home, like providing the “right type of support to people” for example with energy bills, such as tax cuts, as Truss has hinted.
There will be an emergency budget within weeks of taking office if she is the new prime minister and this will be an absolute priority.
Asked whether there would be more handouts to people to help them through the cost of living crisis, he said:
She has also made clear that nothing is off the table.
It does require immediate action and she recognises that.
Javid stressed:
Our long-term, what’s called the trend growth rate, has not recovered since the global financial crisis and we do need to do a lot more.
We cannot tax our way into growth with tax levels almost at the highest in 70 years. We need to address that and cut taxes to make further supply side reforms to get the economy going again.
Mike Bell, global market strategist at J.P. Morgan Asset Management, explains the dilemma for policymakers.
Rising inflation is really putting the squeeze on real wages, even with strong wage growth. And with the increase in energy bills coming in October, it’s only set to get worse.
To avoid a large hit to consumers, significant further fiscal stimulus would be required beyond what is currently being proposed by either candidate to be the next prime minister.
However, if enough stimulus is provided to largely offset the hit to consumers, then the Bank of England may well feel the need to continue raising interest rates. This could then pose a risk to consumption and the housing market via higher mortgage costs.
So unless wage growth and hence underlying inflationary pressures moderate on their own without a rise in unemployment, UK policymakers are stuck between a rock and a hard place.
Jake Finney, economist at PwC, said:
UK consumer price inflation increased to 10.1% in July, reaching double digits for the first time since 1982. As this is slightly higher than the Bank of England’s expectation of 9.9%, we expect today’s CPI data to add to existing pressure for the Bank to act more decisively, perhaps by increasing its headline policy rate by 50 basis points in its next meeting in September.
Compared to other peer economies – France, Italy, Germany and the US – the UK now records the highest rate of harmonised inflation and is the only advanced economy now in double digits. We expect inflation to continue rising in the next few months, reaching its peak in January 2023 as the energy price cap is uplifted once more and household energy bills potentially exceed £4.2k a year. Though some of this impact could potentially be offset by additional government support.
Ruth Gregory, senior UK economist at Capital Economics, said:
While inflation in the US may now have reached a peak, we still think that CPI inflation in the UK will rise to at least 12.5% in October and that the Bank of England will raise interest rates from 1.75% now to 3.00%, even when the economy is in recession. That remains a higher forecast than the peak of 2.55% envisaged by the consensus of analysts.
But, aside from surging energy costs, there are some positive signs:
Admittedly, there were some signs that global price pressures are easing. Second-hand car price inflation fell for the fourth month in a row from +15.2% to +8.6%. Inflation in this category was initially driven high by red-hot demand and shortages of supply during the pandemic. What’s more, price pressures further up the supply chain eased. Input price inflation dropped from 14.9% in June to 14.6% in July and core producer output prices eased from 14.9% to 14.6%.
But there were further signs that the global drivers of inflation are being replaced by domestic ones. Rents inflation increased from 3.2% to 3.8% in July. Moreover, services inflation (which is mostly driven by domestic factors) rose from 5.2% in June to a 30-year high of 5.7% in July.
DOUBLE DIGITS… UK inflation hits 10.1% in July – beating economists’ expectations AGAIN – more than 5x the BOE’s target – a new 40 year high
That leaves another 50bp hike v much on the table at the Bank’s Sept meeting
More on @BloombergRadio now with @stephencrrll & @atbwebb
— Lizzy Burden (@lizzzburden) August 17, 2022
Suren Thiru, economics Director for the Institute of Chartered Accountants in England and Wales, said:
Red-hot inflation is suffocating the UK economy, and with the peak some way off, the risk of recession is rising.
The latest increase means that the cost-of-living crisis is escalating as inflation continues to outstrip pay growth, eroding people’s incomes. Companies’ ability to operate is also under significant pressure as they see their own costs surge and customer demand wilt.
Inflation may moderate a little in August as strong base effects caused by the comparison with August 2021, when inflation leaped from 2.0% to 3.2%, impacts the calculation. However, with eye-watering increases in energy bills due from October, inflation is on track to peak at over 13%.
With inflation soaring, another half-point interest rate rise in September is very much on the table. However, with the looming recession likely to help bring down inflation, the case for continuing to tighten monetary policy should diminish.
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