Prices soar in stores and consumers face fall crisis. Official figures show inflation has risen to target fastest rate in a decade in August , as the impactof Covid-19 and Brexit increases the cost of living.
Exceeding City economists' forecasts, the increase of 1.2 percentage points of the consumer price index was the highest since January 1997, when Gordon Brown will later submit the Bank of England independence to manage inflation. At 3.2%, the CPI is now the highest since March 2012.
Questions be asked about how Threadneedle Street will react. But there is a more difficult challenge for the Treasury: is it really the right time to take more money out of people's pockets?
Despite the surge cost of living, it sounds like the plan, with the biggest social security overnight cut planned for universal credit , a public sector wage freeze and increase of national insurance contributions .
September is the month when NHS workers will receive an extra dollop of money in their wages thanks to the government wage agreement announced in July, return dated April. While this is useful, the paychecks also arrive in the form 3% wage increase is erased by the increase of the cost of living.
Combined at the end of leave this month, government plans will take a considerable part of demand from an already slowing economy. The rebuild better strategy could soon become confused because of the same, in a 2010s reboot, when the recovery from the financial crisis was stifled by austerity which has hit household purchasing power.
Shortages of workers and materials have weighed on activity in recent months and brought near-stop growth . With the Delta variant threatening a hard winter ahead , experts warn the UK economy is heading for hard times.
The alarm bell should ring in the Treasury, again Rishi Sunak seems optimistic. There are reasons the Chancellor can take comfort. The Bank of England expects the Inflation drops from a high close to 4% this year, as temporary factors recede.
With CPI based on annual price change in the basket of goods and services, much of the recent increase reflects a sharp comeback after a record drop last year. As a result, record price increases over the past 12 months are expected to continue to establish new records in the next 12, and that's unlikely.
The most important factor in August was the " "Eat out to help " a year earlier, when Sunak half-price meals temporarily reduced the cost of living. The Office for National Statistics said inflation should have been at least 0.4 percentage point lower. pressure is mounting for the opposite reason.
Business leaders warn that a supply disruption could last at least two years and some changes will occur will prove to be permanent, especially from Brexit erecting tighter trade barriers and reducing the supply of European workers to Britain.
The disruption of the supply chain supply is at its worst since the 1970s and companies report a record number of vacancies . Shipping costs have quadrupled, the cost of raw materials to manufacturers has skyrocketed, and global energy prices have reached record highs.
With growth hitting a hole this fall, economists warn that there is a whiff of stagflation in the air. It will be an uncomfortable time for the Treasury and the Bank of England, but even more difficult for beleaguered British households.