The rate of inflation will reach “astronomical” levels in the next year according to a leading think tank, with the retail price index, the cost-of-living measure often used by trade unions in pay bargaining, climbing to 17.7%.
The National Institute of Economic and Social Research (NIESR) has said that around seven million households would be living “pay cheque to pay cheque” as high inflation forces the Bank of England to further increase interest rates.
Stephen Millard, NIESR deputy director, predicted that the UK economy would contract for three consecutive quarters, shrinking by 1% come spring 2023. The think tank said increases in energy and food costs would take the consumer prices index, which was recorded as 9.4% for June, to 11% by the end of this year.
Millard added there would be “no respite” families and businesses in the short term and that interest rates will have to rise “the 3% mark” to bring inflation down.
The think tank reported that average incomes would fall by a record 2.5% this year, meaning millions of families having to use savings or expensive credit to pay for heating and food this winter.
RPI inflation and pay awards
“Accumulated savings of poor households are predicted to fall sharply, leaving them with little or no headroom to cushion the impact of persistently high prices of necessities,” said the report’s authors.
The institute’s forecast for RPI inflation, which the Office for National Statistics recorded as 11.7% in June, will make industrial relations even more strained at a time when trade unions are already striking or threatening to strike across many public services.
NIESR director Jagjit Chadha said ordinary Britons would pay the price for years for “underinvestment” in public services, which had left them vulnerable to successive economic shocks like Brexit, the coronavirus pandemic and the Russian invasion of Ukraine.
In the past month many larger employers have offered cost-of-living bonuses to their least well-paid staff, particularly in the banking sector.
Yesterday, the Unite union said that HSBC had given around 18,000 of its lowest paid employees a £1,500 payment to help with rising living costs in their August pay.
Dominic Hook, national officer at Unite, said: “Unite has worked tirelessly to demonstrate to HSBC the need for urgent action to help thousands of employees facing the largest squeeze on their incomes. This extra £1,500 payment demonstrates the importance of the collective trade union voice in the workplace.”
The bank is the latest employer to provide its lowest paid staff with a cost-of-living payment, as financial organisations including Barclays, Natwest, Lloyds Banking Group, Virgin Money and TSB have all made similar announcements.
Last week, the Co-operative Bank awarded its staff a £1,000 pay increase, due to take place in September. Around 95% of its 3,000 employees are eligible, while the top-5% of earners will not receive the increase.
TSB is awarding 4,500 of its employees with a £1,000 bonus to help with rising living costs, which will comprise two £500 payments in October 2022 and February 2023.
Additional reporting by Zoe Wickens