Millions cut energy, food and basic products
Around 24 million people in Britain have reduced energy use in their homes, while 16 million are cutting back on food and staples, the Office for National Statistics has warned.
The latest ONS cost of living survey has found that nine in 10 adults in Britain said their cost of living has risen as rising inflation hit household incomes .
The most frequent causes were:
- an increase in the price of your grocery store (94%)
- an increase in gas or electricity bills (82%)
- an increase in the price of fuel (77%)
Faced with these price increases, millions of families are cutting back on spending where they can, reducing their savings or taking on more credit.
More than a third of those whose cost of living had risen cut back on food and necessities (equivalent to about 16 million people).
Almost a quarter (23%, about 11 million people) used savings to cover costs, and 13% (about 6 million people) said they used more credit than usual.
Grim and unsurprising findings in the latest @ONS household finances update. The proportions reporting cost of living increases, reduced ability to save, and reduced ability to meet emergency costs remain high. But the upward drift in proportion to the use of credit to make ends meet is a major concern pic.twitter.com/if4LdM3Vif
— Matt Whittaker (@MattWhittakerPB) August 5, 2022
The survey also found that people are:
- spend less on non-essential products (57%, around 26 million people)
- use less gas and electricity at home (51%, around 24 million people)
- reduce non-essential journeys in your vehicle (42%, about 19 million people)
As for the drivers behind the rising cost of living, respondents are feeling it in a number of areas. 84% say the cost of their grocery store has increased, 73% point to rising household fuel costs. And 69% highlight the increase in transport fuel costs pic.twitter.com/s8460feD25
— Matt Whittaker (@MattWhittakerPB) August 5, 2022
Key events
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Mark Sweney Photograph: Simon Dawson/Reuters
In the City, shares in advertising giant WPP have fallen more than 7% after investors reacted to concerns about the strength of the advertising market next year as the global economy weakens.
The London-based marketing services giant is the biggest faller on the FTSE 100, with more than £700m wiped off its market value, despite beating analysts’ consensus for second-quarter performance and joining the their peers to increase their goals for the full year.
WPP reported organic revenue growth of 8.2% in the second quarter, well ahead of City expectations of 5.5% growth. The company posted double-digit revenue growth in the US, the world’s largest ad market, and Germany in the second quarter, while the UK grew by 6.2%.
The strong performance prompted the company to raise its underlying growth forecast for this year by 0.5% to a range of 6% to 7%, similar to US rivals Omnicom and France’s Interpublic and Publicis, which have already reported solid results.
However, Mark Read, the chief executive of WPP, admitted that there is a “more uncertain economic environment ahead” in 2023.
WPP said it was “confident” of sticking to its target of organic revenue growth of 3-4% and overall operating profit margin of 15.5-16% next year, but said no would confirm official guidance for 2023 until February.
Investors are taking this unwillingness to give a concrete forecast as a possible sign that the market could weaken, sending WPP shares down more than 7%. The company’s shares are down 14% in the last year.
Citi analyst Thomas Singlehurst says:
“There is a lot of skepticism about the prospects for the advertising industry.
Updated at 12.26pm BST
Full story: Workers demanding pay rises risk fueling inflation, bank chief says
Mark Sweney
Workers should refrain from asking for pay rises to match inflation, according to the governor of the Bank of England, who warned there was a risk of inflation “becoming entrenched”.
Andrew Bailey, who added that he does not expect interest rates to settle at pre-financial crisis levels of around 5%, declined to decide what would be an appropriate pay rise, a day after he warned that inflation would reach 13% in October. . The Bank’s inflation target is 2%.
“If everyone tries to beat inflation, and that’s both in price setting and wage setting, it doesn’t go down, it gets worse,” he told BBC Radio 4’s Today program on Friday.
“My key point is that if inflation gets embedded and persists, it gets worse. And the effects get worse.”
Britain is embroiled in a summer of strikes by workers in industries from rail and aviation to the post office and telecoms, as unions try to win raises to allow their members to keep wages in line with levels of inflation at a 40-year high.
More here:
Households have been warned that the average energy bill could rise by nearly £4,000 a year from January, more than some previous forecasts.
Auxilione, a small energy consultancy, has forecast that the energy price cap in Britain will rise to £3,488 a year from October, and then to £3,994 at the quarterly change in January 2023.
Forecasts for January are still uncertain, as there are more than three months to decide on the price.
The October prediction is likely to be more accurate (Ofgem should publish the new price cap later this month – it’s currently £1,971 a year).
Research firm Cornwall Insight, which has a strong track record on capping prices, predicted earlier this week that it could reach £3,615 a year from January.
Last month, BFY, a management consultancy, predicted that a typical energy bill could reach £3,850 a year by January.
The big issue is that the government’s existing support package will be inadequate for struggling households, as the Resolution Foundation warned (see initial post).
What do today’s @bankofengland announcements mean for households? Real household income after tax is expected to fall by around £2,000 this year and next. Inevitably, the Government will have to do more to protect families from the worst effects of this crisis. pic.twitter.com/NN1AxQ5152
— Resolution Foundation (@resfoundation) August 4, 2022
Updated at 11.49 BST
It has become clear this week that Andrew Bailey and Liz Truss have very different views on how to manage inflation and the economic crisis.
This suggests that there could be significant tensions between Downing Street (if Truss beats Rishi Sunak) and Threadneedle Street as the economy goes into recession, a situation where you want monetary and fiscal policymakers to work together.
Particularly with some newspapers (notably today’s Daily Mail) blaming Bailey for not reacting more quickly last year.
ITV News’ Joel Hills sums up the situation:
Andrew Bailey is from Mars, Liz Truss is from Venus.
The Bank of England’s narrative about why inflation is high and rising and how it can be tamed looks very different to that of the current favorite to become the next Prime Minister.
This is a bit worrying… 🧵
— Joel Hills (@ITVJoel) August 5, 2022
The Bank argues that inflation will hit 13% in October, largely because Vladimir Putin has sent energy prices skyrocketing, staggering and ruinous, and that this is something he cannot help.
— Joel Hills (@ITVJoel) August 5, 2022
The Bank calculates that to keep inflation anchored at 2% last year it would have had to 1) foresee the Russian invasion of Ukraine and 2) raise interest rates “thousands into double digits”, creating an even bigger recession than the one we are now facing.
— Joel Hills (@ITVJoel) August 5, 2022
Team Truss’ take is different. They argue that the Bank is partly to blame for the price spiral, suggesting that the failure to act sooner and more decisively by raising interest rates means that the cost of borrowing will now have to rise more than I would have done otherwise.
— Joel Hills (@ITVJoel) August 5, 2022
The Daily Mail shares this opinion.
The Bank believes the worst cost-of-living squeeze for 60 years (driven by out-of-control prices rather than tax rises) will blow such a huge hole in the disposable incomes of UK households and businesses that now a recession of some description is inevitable.
— Joel Hills (@ITVJoel) August 5, 2022
The Bank is raising interest rates – and in doing so will intensify the pressure – because it says it sees signs that inflation is starting to feed domestically and needs a purge. A slowdown and rising unemployment are unfortunate but necessary consequences.
— Joel Hills (@ITVJoel) August 5, 2022
Liz Truss claims a recession can be avoided. She blames Rishi Sunak’s tax hikes for the fall in economic growth and argues that if she becomes prime minister, growth can be revived by immediately implementing a package of tax cuts worth more than $30 billion free.
— Joel Hills (@ITVJoel) August 5, 2022
If the Bank is right, rampant inflation + looming recession will make tax cuts much harder to implement. Indeed, the next Prime Minister will likely have to prioritize greater spending on even more financial support for struggling households and vital public services such as the NHS.
— Joel Hills (@ITVJoel) August 5, 2022
Bailey and Truss seem to have two very different worldviews. Regardless of which you find more believable, it’s hard to see how they can be easily reconciled if Truss wins the leadership contest.
In the coming months we need a monetary and fiscal policy in harmony.
— Joel Hills (@ITVJoel) August 5, 2022
Updated at 11.31 BST
Here’s a video clip of Business Secretary Kwasi Kwarteng criticizing the Bank of England’s inflation control this morning (see previous post), saying “something has clearly gone wrong” as inflation nears 13%.
‘Something has gone wrong’: Kwasi Kwarteng criticizes the Bank of England – video