Rishi Sunak risks missing his main target of halving inflation this year, one of Britain’s top economic forecasters has warned, as households lose thousands of pounds amid the cost-of-living crisis.
Sounding the alarm about the impact on living standards, the National Institute for Economic and Social Research said skyrocketing prices for food and other basic items meant inflation was on track to remain stubbornly high for the rest of this year. .
He said the combined impact of the Covid pandemic and the ongoing fallout from the cost of living crisis meant that Britain’s poorest households would be around £4,000 a year worse off as a result, significantly higher than for households More rich.
Sunak pledged to halve inflation in January, when the rate stood at 10.1%, but the latest figures for March showed it was still at 10.1%. NIESR forecasts a decline but warned Thursday that the rate would remain “persistently elevated,” falling just to 5.4% by the end of 2023.
Inflation, which measures the annual increase in the price of an average shopping basket of goods and services for consumers, has skyrocketed as households and businesses grapple with energy costs after Russia’s invasion of Ukraine.
The prime minister had made halving the UK’s highest rate of price increases in four decades top of his list of five key priorities for 2023, setting the opening post of his premiership. with the promise of lowering the cost of living.
The NIESR estimate is significantly higher than that made by the Office for Budgetary Responsibility, the government’s independent economic forecaster, which forecast a drop to 2.9%. Inflation in March stood at 10.1%, driven by the largest annual increase in food prices since 1977.
It comes as the Bank of England prepares to raise interest rates for the 12th consecutive time on Thursday, in the most aggressive campaign to raise borrowing costs since the 1980s.
Jagjit Chadha, director of NIESR, called Sunak’s decision to set a target to cut inflation in half a “complete mistake”, warning that it risked clouding the Bank’s responsibility for bringing inflation to 2%.
“The government should not enter that space. In my opinion, it has provided a focal point for 5% inflation this year and has contributed to the persistence [of high inflation]getting people to plan around that halving,” he said.
“It shouldn’t be what the government does.”
Publishing its spring outlook for the economy, the think tank said disposable personal income was expected to fall 0.7% in 2023 and 1.1% next year as households battle high inflation. and low levels of wage increases for workers.
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He said Britain’s poorest households were suffering the biggest financial hit, despite emergency government support targeted at low-income people. Faced with skyrocketing prices for food, energy and other basics, he said the poorest fifth of households would be £4,000 worse off compared to pre-pandemic levels. For the average household, the hit would be worth around £3,000.
Adrian Pabst, deputy director of public policy at NIESR, said the government’s role was to support the hardest-hit households by combining targeted support on energy bills with a substantial boost to public investment.
“Reversing the decline and reducing inequalities will be a generational task. Now is the time to build greater productive capacity and grow national assets so that we can tap into the country’s unrealized potential,” he said.
A Treasury spokesman said the government had introduced one of the most generous cost-of-living support packages in Europe.
“We are working closely with the Bank of England to bring inflation down and we remain committed to halving inflation this year. We must stick firmly to this plan so that everyone’s income goes further and the right conditions are in place for long-term economic growth,” they added.