‘OBR forecasts inflation in the UK to fall to 2.9% by the end of 2023’ was an eyebrow raising prediction when Jeremy Hunt announced this. The news on Wednesday that inflation increased when next measured, following consecutive months of falling inflation, was a surprise. It makes this forecast, again, seem unlikely. Food and non-alcoholic beverages played a big part in this latest move, with prices increasing by 18.4% from last February.
ONS chief economist Grant Fitzner said: "Inflation ticked up in February, mainly driven by rising alcohol prices in pubs and restaurants following discounting in January. Food and non-alcoholic drink prices rose to their highest rate in over 45 years with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing.”
No short-term cost relief yet, then, for businesses and their employees. Workforces will, therefore, continue to be looking for significant pay rises or support to combat the high cost of living.
Welcome support did come in the form of an extension to the current Energy Price Guarantee (EPG). On 1 April 2023, the EPG was set to rise by a further 20% on average, taking a typical bill under the EPG from £2,500 each year to £3,000 per annum. That said, the Energy Bills Support Scheme we have enjoyed over the last 6 months has ceased and so the average household is likely to need to find around £200 extra for energy bills during the second quarter of this year. The EPG will still rise to £3,000 each year in July – however, it's unlikely this increase will have any impact on bills now because Ofgem's Energy Price Cap is predicted to fall well below this level in July. Households pay whichever is the lower of these two rates.
We do applaud Prepayment meter customers paying less for energy from July, as charges are brought in line with those for direct debit customers. The freezing of fuel duty - the 5p cut to fuel duty on petrol and diesel, due to end in April, being kept for another year is also helpful.
The level of saving across the UK remains, unsurprisingly, low. Many households have little or no emergency funds. Whilst ISA allowances have been frozen, the extension of the Help to Save scheme to April 2025 is a positive, giving low-income earners claiming universal credit or working tax credit a potential bonus of up to £1,200 to assist in this regard. How easy such households will find it to save in the current climate is another matter.
The freezing of Income tax thresholds is not helpful here. This ‘fiscal drag’ will mean effectively a third or more of any salary increases most employees get will be lost in tax.