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The U.K. is two months away from a brutal cost-of-living crisis

By in Economics on .

The U.K. is two months away from a brutal cost-of-living crisis

Soaring inflation is causing headaches around the world, but in Britain the squeeze is coming from all sides

Commuters walk over London Bridge during the morning rush hour in central London. Britain's acute cost-of-living crunch will hit in April.
Commuters walk over London Bridge during the morning rush hour in central London. Britain’s acute cost-of-living crunch will hit in April. PHOTO BY DANIEL LEAL/AFP VIA GETTY IMAGES
Soaring energy prices and rising inflation are causing policy headaches around the world. In the U.K., though, the government is raising taxes at the same time, kicking off an economic experiment in one of the countries worst-hit by the pandemic.

Britain’s acute cost-of-living crunch will hit in April, instantly stretching household and company budgets and penalizing the poorest households, many of which have already been most impacted by COVID-19.

The squeeze is coming from all sides. U.K. consumer price-growth hit a 30-year high of 5.4 per cent in December, and is wiping out wage gains. The Bank of England is jacking up interest rates faster than the Federal Reserve. A cap on domestic energy costs is expected to rise by 50 per cent in April, just as taxes increase in a bid to repair the U.K. public finances. Brexit hasn’t come cheap, either.

The Resolution Foundation think tank says the outcome will be a “living standards catastrophe,” and the Centre for Economics and Business Research reckons annual living costs for a typical U.K. household will rise by 1,980 pounds (US$2,700) — even before taxes go up.

While lawmakers in Westminster debate whether Prime Minister Boris Johnson should resign over whether he broke lockdown rules, the cost of living is fast becoming the country’s key political battleground, and a real danger for him — or for his successor.

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