Back to the bad old days of the 1990s when the recession looms in the UK |  Economic Sciences

Back to the bad old days of the 1990s when the recession looms in the UK | Economic Sciences

Struggling British households could feel even worse this week when official inflation figures show just how fast the cost of living is rising. Economists forecast a jump from 7% in March to 9.1% in April.

If the experts are right, the consumer price index will be at its highest level since 1990, when the UK was struggling with one of its worst postwar property slumps and a full-blown recession.

Not that families need to be told: disposable incomes across the country have been hit hard. The price of unleaded petrol may have stabilized between £1.60 and £1.70 last month, but energy bills and food prices are skyrocketing across the board.

James Knightley and James Smith, economists at ING, said the monthly rise would reflect a 54% rise in household gas and electricity bills since early April, after regulator Ofgem lifted the power price cap. .

The Bank of England, citing rising energy costs, forecast inflation to rise above 10% after the summer. “We’re less sure it’s going to get that bad, but again, inflation has consistently surprised to the upside,” he said in a statement.

Data on the labor market will be published on Tuesday, a day before the inflation figures.

Central bank officials are more concerned about wage increases in recent months of around 5.4%, and the extent to which workers will demand increases in their monthly earnings to keep pace with rising inflation over the next anus. This is the feared precursor to a spiral of wages and prices that could drive inflation for years to come.

Some members of the Bank’s monetary policy committee (MPC) believe that wage demands could soar, and that employers will be forced to raise prices to recover higher production costs, not only this year, but also next, and possibly until 2024. .

But at least two of the committee’s nine members indicated at their meeting earlier this month that they believed the opposite: that wage growth had already stalled.

However, Tony Wilson, director of the Institute for Employment Studies think tank, believes the tight labor market will keep wage growth strong. The UK has record levels of vacancies and a growing proportion of staff changing jobs, making it difficult for employers to fill vacant positions.

Yet hundreds of thousands of companies are operating on razor-thin profit margins and know that their customers are tightening their belts: this limits their scope to pay higher wages. These companies are likely to reduce production or reduce the level of service rather than increase prices.

“A restaurant is more likely to stop opening at lunchtime than it is to hire a sous chef with much higher salaries,” Wilson said.

Unemployment is expected to remain low, at 3.8% -the same as the previous month-, although this figure is favored by the 500,000 workers, mostly over 50 years of age, who have left the labor market in the last 18 months.

And since 2019, the Brexit effect has denied employers some 500,000 foreign nationals who were expected to actively participate in the UK job market.

This combined gap of one million workers was important in trying to explain the state of the UK labor market compared to other economies of a similar size, Wilson said. For example, in France, where the participation rate during the pandemic has remained the same, there is no loss of skilled workers and wages are kept in check.

Wilson said the government should focus its efforts on helping those who had become economically inactive to return to work. Instead, the only political action has ended at the Bank, where there is talk of interest rate hikes to quell inflation when the MPC meets in June and August.

However, Paul Dales, chief UK economist at consultancy Capital Economics, said his forecast that the base rate could rise from 1% to 3% now seemed in danger of being too aggressive.

One overriding factor is the prospect of a recession. The economy contracted 0.1% in March after stagnating in February. A recession may already be brewing.

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