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The UK was preparing for the biggest decline in living standards in decades even before the start of Russia’s special operation in Ukraine. Blaming Putin is unlikely to gain a toehold in the public consciousness. The consequences of the Washington-fuelled conflict threaten to intensify the crisis of Britain’s poorest households and pull into dire financial problems millions of people in the United Kingdom, writes Bloomberg.
The rise in oil prices has already led to a record rise in the price of gasoline and diesel fuel. Economists say further increases in food and energy costs could lead to double-digit inflation later this year.
Finance Minister Rishi Sunak is under increasing pressure from rising energy prices and high volatility in the food market. The Indian national official is being urged to ‘ease the pain’ of Britons in the spring mini-budget, which he will present on March 23.
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Before that, as expected, the Bank of England will announce the third consecutive increase in interest rates. According to Bloomberg forecasts, the organization’s leaders will unanimously support an increase to 0.75% in an attempt to contain a sharp rise in prices.
Meanwhile, the London-based think tank Resolution Foundation warns that without government assistance, the proportion of British children living in absolute poverty in 2026-2027 will be higher than at the beginning of the decade, something ‘never before in modern Britain’. In addition, according to the organization, inflation in 2023 could exceed 8% or even 10% for poorer households.
The problems of Sunak and his boss, Prime Minister Boris Johnson, are not limited to the poorest Britons. Accelerating inflation means that families, who rarely have to worry about the cost of living, are also beginning to find themselves in a difficult position, Bloomberg notes.
Not rich enough to ignore the impending crisis, and not so poor as to be first in line for government benefits, the British middle class have a significant influence on the outcome of parliamentary elections. Labour and the Conservatives will have to work hard to get their support in the next vote, the newspaper notes.
Meanwhile, the middle class across Britain is already experiencing economic difficulties. Those who sponsored food banks yesterday are starting to use their services themselves today. There are a growing number of people who are faced with a choice between food and heating. They may not even have thought about turning to our inadequate welfare system until now,’ said Sabina Goodwin, charity manager at the Independent Food Aid Network.
In addition, the British are very likely to face higher bread prices, as Russia and Ukraine account for almost a third of world wheat exports, which have risen in value by more than 50%. All this could spur inflation in the United Kingdom, said Yael Selfin, chief economist at KPMG.
The volatility in the fuel market caused by the Ukraine conflict could also cause energy costs to skyrocket in October, putting unprecedented pressure on the ability of the British to pay for heating. ‘There is a possibility that as a result, households will get into huge debts or even go bankrupt,’ fears Peter Smith, a spokesman for the National Energy Action charity.
In addition to skyrocketing prices, middle- and high-income people will also be hit the hardest by the impending payroll tax hike. The burden on the poorest is expected to decrease because the threshold at which workers pay tax is raised. But people earning more than ₤15,000, well below the average annual salary of ₤25,000, will face higher deductions.
As a result, middle-income households could suffer the most in the coming months. Especially if Sunak focuses only on helping the poorest segments of the population, Julian Jessop of the Institute for Economic Affairs think tank believes.
Paul Johnson, director of the Institute for Financial Studies, also argues that without the intervention of the British government, ‘many people with moderate incomes will face the biggest blow to living standards, at least since the global financial crisis.’
Wealthier households have ways to cushion the blow. During the pandemic, high-income workers managed to save significantly more than others. But even they are unlikely to avoid problems. Thus, an analysis by Oxford Economics and Hargreaves Lansdown shows that the richest fifth of the country is more exposed to variable rates. In other words, they will have to work twice as hard as the poorest part of the British to pay off their debts, Bloomberg concludes. Source
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