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UK inflation has climbed to a new 30-year high as soaring energy costs, fuel bills and food prices drive the worst cost of living squeeze in decades.
Consumer prices rose by 6.2% in the year to February, up from 5.5% in January, the Office for National Statistics reports this morning. That’s the highest inflation reading since March 1992, as household budgets come under intense pressure.
On a monthly basis, CPI rose by 0.8% in February, the largest monthly CPI increase between January and February since 2009.
And there is worse to come. Last week, the Bank of England predicted inflation would reach 8% in April, and could hit 10% in the autumn when the energy price cap rises again.
This latest cost of living squeeze comes hours before Rishi Sunak presents his spring statement – likely to be a mini-budget as the chancellor prepares a fresh package of measures to mitigate some of the inflationary pain.
Sunak will expected to promise ‘security for working families’, and also tell MPs that a strong economy is vital in tackling Moscow’s aggression.
He’s expected to say:
“So when I talk about security, yes – I mean responding to the war in Ukraine ..
“But I also mean the security of a faster-growing economy, the security of more resilient public finances, and security for working families as we help with the cost of living.”
Sunak has several options on the table. A cut in petrol duty seems likely, perhaps by 5p per liter, to ease some of the surge in fuel costs. There have been calls to postpone next month’s 1.25 percentage point rise in national insurance, introduced to fund health and social care. Another option is to lift the threshold at which national insurance kicks in. It’s currently set to rise to £ 9,900 from April, rather lower than the income tax personal allowance of £ 12,570.
The chancellor has also been urged to lift benefits to help poorer families and pensioners cope with the looming surge in inflation.
Raising all working age and pensioner benefits by 8.1%, rather than the 3.1% currently planned, would be the most effective way to support families hardest hit by Britain’s cost of living crisis, the Resolution Foundation reported this week.
Sunak could also expand the £ 9bn package of energy support announced last month.
Yesterday’s public finances showed the government has borrowed around £ 26bn less than forecast this financial year, with tax revenues £ 37bn higher. That gives some headroom for Sunak to intervene in the cost of living crisis.
But rising inflation pushed up debt repayment costs, meaning February’s deficit came in at £ 13.1bn, ahead of forecasts of £ 8.1bn.
Rising prices and the shock of the Ukraine war means the economic outlook is weaker, and more troubling.
It could mean higher-than-hoped borrowing, slower growth, higher inflation and higher interest rates in the next few years.
As Mujtaba Rahman, managing director, Europe, at Eurasia Group put it:
Sunak has more at his disposal than expected because of better borrowing figures than expected, higher tax revenues and a smaller debt-to-GDP ratio in 2021-22 compared with estimates made by the Office for Budget Responsibility (OBR) in October.
But his room for maneuver is constrained by a slowdown in economic growth this year. With inflation so high, taxes going up next month, and benefits including pensions only rising by 3.1 per cent, household incomes face their biggest year-on year fall in living memory.
- 7am GMT: UK consumer price inflation report for February
- 7am GMT: UK PPI index of factory prices for February
- 9.30am GMT: UK house price index for January
- 12.30pm GMT: Rishi Sunak delivers Spring statement
- 1.30pm GMT: Office for Budget Responsibility publishes economic and fiscal outlook.
- 2.30pm GMT: OBR press conference