Inflation could jump to “astronomical” levels of up to 15 percent early next year and stay higher for longer than previously thought, experts have warned ahead of Bank of England’The latest report on the UK economy.
The dire economic outlook comes as the Bank prepares to raise interest rates tomorrow to tame out-of-control inflation. sky-high gas prices are threatening to push average electricity bills above £3,600 a year by early 2023.
Most analysts now expect the Bank’s Monetary Policy Committee to vote on Thursday to raise the Bank’s base rate by 0.5 percentage point to 1.75 percent.
Consumers face a two-pronged attack on them standard of livingwith rising rates making mortgages more expensive for millions of homeowners, while the prices of essential goods such as energy and food are rising far faster than wages.
The Resolution Foundation, a think tank that focuses on living standards, said it was now “likely” that inflation could rise to 15 percent, the highest level since 1980.
Low- and middle-income families are likely to face a disproportionately higher cost of living for the foreseeable future, the foundation notes.
He expects inflation to remain steadily high, despite some preliminary signs that upward price pressures may be beginning to ease.
Market prices for imported goods, including oil and wheat, have fallen in recent months as inflation causes the global economy to slow sharply, reducing demand.
However, this was more than offset by the long-term increase in wholesale gas prices caused by Russia’s war in Ukraine.
Jack Leslie, senior economist at the Resolution Foundation, said the outlook for inflation was “highly uncertain” and largely driven by unpredictable gas prices.
“While market prices for some staples — including oil, corn and wheat — have fallen since their peak earlier this year, those prices have yet to feed through to consumer spending and remain well above January levels.
“As gas prices continue to reach record levels, both households and businesses will see significant increases in their electricity bills over the winter and into 2023. How long this high inflation will last is highly uncertain, but the cost of living crisis looks set to continue. longer and will hit households harder than previously expected.”
In recent weeks, state-backed Russian energy giant Gazprom has cut gas supplies to Europe, sharply raising prices and triggering rationing in parts of Germany.
Fears are mounting that a further disruption in supply prices will widen this winter, plunging the continent into a deep recession when gas supplies run out.
The Niesr think tank said it expected inflation to rise to an “astronomical” 11 percent and warned that the retail price index (RPI), used to set rail fares and student loan repayments, was expected to hit 17.7 percent.
Nisr warned that the purchasing power of household incomes will fall by 2.5 percent next year if prices are set “indefinitely at a higher level.”
Real household incomes are projected to remain more than 7 percent below the pre-COVID trend after 2026.
The Bank’s rate hike will further exacerbate financial hardship by pushing up mortgage rates for the 20 percent of borrowers on tracker and variable deals. Many more first-time buyers and people remortgaging over the next year will also pay higher rates.
Rightmove estimated that the 0.5 percentage point rise would mean that new first-time buyers would see monthly mortgage payments of more than £1,000 a month.
That would mean mortgage payments averaged 40 percent of gross pay, a level not seen since 2012.
Average mortgage payments have already risen by a fifth this year to £976 a month, up from £813 a month in January.
Tim Bannister, Rightmove’s housing expert, said: “First time buyers trying to get on the ladder are now facing average monthly mortgage payments that are 20 per cent higher than at the start of the year due to rising interest rates and asking prices, and that’s assuming they’ve been able to overcome the hurdles to raise a large enough deposit.
“A new record first-time buyer asking price of £224,943 means that a 10 per cent deposit for a first-time home buyer is now 57 per cent higher than a decade ago, while average earnings have risen by just 31 per cent .”
Inflation to hit ‘astronomical’ 15% next year as UK electricity bills hit £3,600
Source link Inflation to hit ‘astronomical’ 15% next year as UK electricity bills hit £3,600