UK inflation is already in double-digits and forecast to strike 13 percent in the coming months due to runaway energy bills…reports Asian Lite News
Britain announced a vast 80-percent hike in electricity and gas bills, in a dramatic worsening of the cost-of-living crisis before winter as the country awaits a new leader.
Regulator Ofgem said its energy price cap, which sets prices for consumers who are not on a fixed deal with their supplier, will in October increase to an average £3,549 ($4,197) per year from the current £1,971.
Worse is expected to come in January, when Ofgem next updates its cap, with average bills predicted to top £5,000 — or more.
“The increase reflects the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the Covid pandemic and have been driven still higher to record levels by Russia slowly switching off gas supplies to Europe,” Ofgem said.
The announcement sparked outcry from charities which said financially-squeezed households faced one of the “bleakest Christmases” for years.
UK inflation is already in double-digits and forecast to strike 13 percent in the coming months due to runaway energy bills.
Inflation is at its highest level since 1982, with industrial action over pay growing, and the country is predicted to enter recession later this year.
The near-doubling in the energy cap will likely tip millions into fuel poverty, forcing them to choose between heating or eating, anti-poverty experts say.
“We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make,” said Ofgem boss Jonathan Brearley.
“I talk to customers regularly and I know that today’s news will be very worrying for many.”
The rampant cost-of-living has dominated the race between Liz Truss and Rishi Sunak to succeed Conservative Prime Minister Boris Johnson.
Political opponents have accused him of leading a zombie government and doing nothing to address the problem since his resignation in July.
Household and business consumers, energy suppliers and opposition politicians said urgent action is needed to avoid putting the most vulnerable in desperate situations.
A University of York study recently estimated two-thirds of UK households are at risk of fuel poverty by next year.
But Johnson, who has been on holiday twice in recent weeks, has promised to leave major fiscal decisions to his successor.
The winner will not be announced for another 10 days.
Inflation drives Pound near a 37-year low
It’s starting to look like nothing can stop the British pound from sinking to new lows.
With talk about inflation surpassing 18 per cent next year and families across the country likely to be pushed into energy poverty this winter, the UK’s economic woes are getting worse by the day. The consensus among traders is that the Bank of England will have no choice but to force the economy into a severe recession and cause widespread job losses to rein in price pressures.
It’s put historic lows for the pound within reach. The currency is trading around $1.18, less than 4 US cents away from its weakest level since 1985 against the dollar, underscoring the challenges facing the British economy and the next prime minister. The BOE is already forecasting a five-quarter recession starting later this year.
“Is there more downside? Yes, absolutely,” said Geoff Yu, senior currency strategist at Bank of New York Mellon Corp. “Even if things improve, sterling can’t return to where it was in the past of $1.40 or $1.45. That’s going to be very hard to achieve.”
ChartThe surge in power prices is feeding through financial markets through higher inflation forecasts, leading traders to believe that the BOE will have to be more aggressive. Money markets now show expectations for benchmark interest rates to rise 4.25 per cent next year, the highest since 2008. That’s drive up bond yields as well, with 10-year rates climbing to 2.59 per cent.
Theoretically, higher rates should lead to a stronger currency. But for the UK right now, it’s the opposite. The belief among investors is that further aggressive hikes in borrowing costs — needed to bring down price growth — would deepen Britain’s economic malaise, leaving the country worse off compared with the US and the euro region.
“Rates aren’t always going to be enough to support a currency when the growth-inflation trade off is this bad,” said Kit Juckes, chief currency strategist at Societe Generale SA in London.
UK inflation hit a 40-year high of 10.1 per cent year-on-year last month, and Citigroup Inc. has said it could surge past 18 per cent in January. More than half of UK households risk being pushed into energy poverty this winter by soaring bills, according to consultancy Baringa Partners.
Yields on UK short-end benchmark bonds — which are the most sensitive to changes in monetary policy — are poised to climb by a record this month. Two-year yields have risen 111 basis points, raising borrowing costs to 2.82 per cent, the highest since the global financial crisis in 2008.