UK inflation has surged to a record 10.1 per cent for the 12 months to July, taking it to its highest level for 40 years, as the cost of living crisis continues to bite.
The situation will likely get worse before it improves, with the Bank of England forecasting the rate of inflation to hit 13.3 per cent this year.
The present spike means that the price of everyday items like staple foods, fuel, clothing, shoes and furniture have all climbed over the last year, a development that threatens to hit low-income families hardest at a time when they can least afford it.
Charities have already reported increased sales of and demand for second-hand clothes in response to increased production costs driving high street fashion to its priciest levels since 1988 when records began.
“Price rises in other staple items, such as pet food, toilet rolls, toothbrushes and deodorants also pushed up inflation in July,” said Grant Fitzner, chief economist at the Office for National Statistics (ONS).
“Driven by higher demand, the price for package holidays rose, after falling at the same time last year, while air fares also increased.
“The cost of both raw materials and goods leaving factories continued to rise, driven by the price of metals and food respectively.”
Rising costs, staff shortages and supply chain disruption are known to be affecting both big name retail brands and small businesses alike, leaving them with little choice, as they see it, but to pass on price rises to consumers to ensure their own survival.
ONS data has meanwhile revealed the extent to which UK wages have stagnated, with real pay falling 3 per cent in value between April in June, a rise in cash terms dwarfed by the soaring costs elsewhere.
Private sector workers saw their pay rise 5.9 per cent before inflation – more than three times as fast as their counterparts in the public sector who received a 1.8 per cent increase.
The figures set the government on course for further clashes with public servants including nurses, doctors, lawyers and teachers who have seen the value of their incomes collapse this year, adding to the pain of a decade of falling real wages.
“The scale of this pay pain is even deeper than official figures suggest too, as pay growth estimates are still artificially boosted by the effects of the furlough scheme last year”, said Nye Cominetti, senior economist at the Resolution Foundation.
“This squeeze has come about despite robust pay growth and a lively jobs market, with pay settlements strengthening slightly, and almost a million people moving jobs in the last three months.”
All of this follows on from Ofgem’s announcement in February that the energy price cap, the maximum amount a utility company can charge an average customer per year, would rise by 54 per cent from 1 April in response to soaring global gas prices, landing UK households with an almost £700 annual increase in their electricity and gas bills.
Since that date, the cap has increased from £1,277 to £1,971 for a household on average usage. Prepayment meter customers have meanwhile seen an increase of £708 from £1,309 to £2,017.
The price cap is now forecast to rise still further to approximately £3,600 in October and to as high as £4,200 next year.
Former chancellor Rishi Sunak responded to February’s development by unveiling a series of aid packages for British households in an attempt to soothe the “sting” of rocketing bills but, for many, his intervention was dismissed as too little, too late.
Subsequently responding to the inflation rise, Mr Sunak insisted the government was listening to people’s concerns over what he insisted were “global challenges” and cited his discount and rebate bundle to address energy bills as evidence of state support for struggling families.
“We’re also helping people on the lowest incomes keep more of what they earn by cutting the universal credit taper rate and freezing alcohol and fuel duties to keep costs down,” he added.
Now Mr Sunak is embroiled in the Tory leadership contest, which will not be resolved until 5 September, and outgoing prime minister Boris Johnson has preferred to take multiple holidays rather than any action, leaving the nation in a crisis for his successor to handle.
Meanwhile, British consumers are left facing flatlining wages and higher costs for everything from food, clothing, petrol, heating, national insurance, housing and rent at a time when rising interest rates mean the cost of borrowing is going up too.
While the current outlook appears bleak indeed, consumers are being encouraged to treat the present adversity, which will ultimately pass, as an opportunity to reassess their personal circumstances, streamline their finances and cut out any inessential regular outgoings.
“The most important thing savers can do now is review how this environment will affect their finances, where they are keeping their savings, and make adjustments as necessary,” said Colin Dyer, client director at Abrdn Financial Planning.
“For example, holding significant amounts of cash in a deposit account is effectively losing money in an inflationary environment, so depending on attitude to risk, investing in a stocks and shares ISA may provide a greater return if investing for the longer term.”