Soaring energy costs – they jumped by almost 10 per cent between August and September alone – pushed inflation to a record high as economic forecasters once again reduced Britain’s growth forecasts and predicted the economy would still be stagnant next year.
Consumer Price Inflation rose from 4.5 per cent to 5.2 per cent, a record high last seen during the energy and commodities shock and credit squeeze of September 2008.
The jump, the actual Retail Price Index, went from 5.2 per cent to 5.6 per cent, will leave the Government with a higher bill for benefits payments – unemployment hit a 17-year high of 2.57 million in the three months to August – as the September figure is used for the following April adjustments. Although this time the government will be using the lower CPI to uprate, rather than the RPI.
The basic single state pension is expected to increase by £5.31 to £107.46 (RPI £108.42) a week, the joint state pension by £8.49 to £171.84 (RPI £173.36)
The Jobseeker’s Allowance (JSA) will rise by £3.51 to £71.01 a week.
Those in work and receiving pay rises saw their average earnings increase by
1.8 per cent but costs for housing, water, heating, electricity and other essentials rose 8.6 per cent.
Gas and electricity prices increased 13 per cent and 7.5 per cent respectively following price hikes from Scottish & Southern Energy, E.ON, British Gas and Scottish Power among others. This upward pressure is expected to continue next month as EDF and Npower increase prices.
The respected economic analyst and forecaster, the Ernst & Young ITEM Club, said the British economy has stalled and needs more than the Bank of England’s additional quantitative easing injection of £75 billion to boost growth.
It expects the country’s gross domestic product to grow by just 0.9 per cent this year and by 1.5 per cent in 2012, as private business investment looks set to provide no support to growth. It also forecast exports will grow by less than 6 per cent.
“With the UK recovery grinding to a halt, new measures are now needed to help stimulate growth, said Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club.
“We think there is scope for targeted tax reliefs and spending measures to help put us back on track. In the meantime, businesses need to be much more aware of the economic risks and have contingency plans in place given the current volatility.”
The Centre for Economics and Business Research said its own forecast for UK GDP growth was worse – just 0.7 per cent in 2012. It put the figure for 2011 at just 0.6 per cent, a downward
revision of its original forecast of almost two-thirds.
“The eurozone debt crisis threatens to severely curb the potential for export demand and business investment to drive the UK economy in the short term – something which is necessary to offset the negative impact of government spending cuts and weak consumer demand following the decade of debt-fuelled spending, the CEBR survey said.
“Interest rates now look set to remain on hold until mid-2013 and more easing is on the cards. Our central forecast is for the total stock of assets purchased by the Bank to rise to £300 billion by the end of 2012, though a very severe financial crisis could push this as high as £400 billion”, said the CEBR.
Unite general secretary, Len McCluskey said: “Inflation is soaring, unemployment is out of control and there are no signs of growth.
“The coalition Government is piling misery upon misery for ordinary families. David Cameron and George Osborne’s political cowardice [in not implementing a Plan B] means they
are presiding over an economic catastrophe. Their refusal to change course is a political decision, not an economic one.”
TUC general secretary Brendan Barber singled out the CPI uprating change as a “stealth cut” that will cut pensions and benefits by 0.4 per cent next year but could cut public and private sector pensions by as much as 30 per cent over the next 30 years.
Mr Barber added: “The cost of living is now rising three times faster than wages – squeezing people’s living standards even tighter. But instead of standing up for hard-pressed families, the Government is making things worse by hiking VAT and cutting vital tax credits.
“Ministers must do all they can to promote a plan B based on jobs and decent wages. We cannot build a sustainable economic recovery on the back of people getting poorer.”
