UK: Inflation at 30-year high, government prepares response, Market news

Andy Bruce and William Schomberg

LONDON, March 23 (Reuters) – Inflation in the UK accelerated more-than-expected in February to its highest level in 30 years, increasing pressure on Treasury Secretary Rishi Sunak to announce purchasing power measures in a draft budget amendment that he has to submit at noon.

According to the Office for National Statistics (ONS), the consumer price index (CPI) rose 6.2% year on year last month, a pace not seen since March 1992 after rising 5.5% in January.

Economists polled by Reuters expected, on average, growth of 5.9% in February, and only three of the 39 economists polled expected such a high figure.

For the British Statistical Institute, the main driver behind this price increase last month is rising electricity bills, which show an increase of almost 25% in one year, as well as rising fuel prices.

An additional challenge for the poorest households is the rise in food prices across the board, when prices traditionally rise for some categories of food and fall for others.

Finance Minister Rishi Sunak, who is due to present draft budget amendments at 1230 GMT, is expected to announce new measures in favor of purchasing power while maintaining wiggle room for additional tax cuts until the next elections scheduled for 2024.

TO ADDITIONAL ASSISTANCE TO HOUSEHOLDS

Analysts say the government will have a budgetary margin of between £20bn and £30bn (about €24bn to €36bn), enough to complement the £9bn aid announced last month to help households cope with rising energy prices.

After two years of massive government bailouts of the economy and households amid the COVID-19 pandemic, Rishi Sunak hoped he could slow down government spending to focus on rebuilding the country’s public finances.

But the effects of the war in Ukraine on the British economy and households have prompted calls for more aid to the poor and the middle class, including in the Conservative camp.

“The Chancellor should use this fiscal wiggle room to increase support for low-income households,” said Mel Stride, Conservative chairman of the House of Commons Finance Committee.

The Ministry of Finance has announced that Rishi Sunak will introduce new measures to support the purchasing power of households facing rising prices.

Companies also hit by soaring energy prices are also calling for bailout measures, while the Labor opposition has called for a cut-off tax on energy sector players whose profits have been boosted by rising prices.

“TAX BAG”?

Some analysts, on the other hand, warn against the “tax kitten” illusion, pointing out that inflation, which helped in part to boost recent increases in tax revenues, will soon weigh on growth and increase the cost of debt.

“Real growth is down, the debt burden is rising and government spending will be lower than expected,” Paul Johnson, director of the Institute for Fiscal Research, a fiscal think tank, said on Twitter.

“The energy price shock is exacerbating the situation. Sorry,” he wrote.

According to Yael Selfin, Chief Economist at KPMG UK, inflation figures should also increase pressure on the Bank of England (BoE) to keep raising rates, although inflation is still likely to peak soon and return by mid-2024 to the level of the Bank’s target. England – 2%.

Dan Boardman-Weston, chief investment officer at BRI Wealth Management, warns that tightening monetary policy in the face of inflation and rising taxes could hamper the economic recovery.

“The Bank (of England) will have to strike a delicate balance between inflation control and the need to prevent a recession in the economy,” he notes. (Report by Andy Bruce and William Schomberg, French version by Laetitia Volga and Miriam Rivet, edited by Nicolas Delam)


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