Cost of living crisis: how high could UK inflation rise in 2022?
Inflation hit a 30-year high of 5.4% in December – and analysts predict it could get even worse
UK inflation rose from 5.1% in November to 5.4% in December – the highest rate in 30 years, according to data published by the Office for National Statistics (ONS).
The Consumer Prices Index (CPI) was driven up by “soaring food costs” and the “energy bill crisis”, the BBC reported. And prices of furniture and clothing also contributed to December’s cost of living increase. The large rises were slightly offset by petrol prices, said ONS chief economist Grant Fitzner, “which despite being at record levels were stable this month, but rose this time last year”.
December’s 5.4% figure was “ahead of economists’ expectations” and deepens a cost of living crisis that is “squeezing household incomes”, the FT said. It is also “putting more pressure” on the Bank of England to raise interest rates.
Continuing to be well above the Bank’s 2% inflation target, last month’s cost of living jump will give a “headache” to the chancellor and millions of hard-pressed families, the London Evening Standard said.
How high could inflation reach in 2022?
Just two years ago inflation was at 0.6%, the Standard added. City economists now expect it could go “as high as 7% once energy price hikes kick in”. The last time inflation was at that level was in March 1992 when it hit 7.1%.
It’s a “grim outlook” for 2022, the BBC reported. Paul Dales, chief UK economist of Capital Economics, predicts that the 7% mark will be hit in April. “That would be higher than the peak of 6% that the Bank of England was forecasting when it raised rates in December,” he added. “And although inflation will fall back thereafter, we think it will stay above 4% for all of this year and won’t drop to the 2% target until April 2023.”
Having “failed to anticipate” the surge in inflation, the Bank faces a “dilemma”, the FT said. It will be under pressure to “cool spending” and bring inflation down towards its 2% target. However, it does not want to “squeeze household budgets too far and undermine the recovery”.
Unions call for more support for families
Chancellor of the Exchequer Rishi Sunak said he understood the “pressures people are facing with the cost of living” and that the government will “continue to listen to people’s concerns as we have done throughout the pandemic”.
However, Trades Union Congress (TUC) general secretary Frances O’Grady has called on the government to provide more help for families who are facing a “double hit” from high inflation and slowing wage growth. “The chancellor must come forward with a plan to tackle the cost-of-living crisis,” she said. “Working people need stronger rights to bargain for fair pay increases. And families need more help with rising bills through universal credit.”
The Unison union, which represents public sector workers, has also weighed in, The Guardian reported. General secretary Christina McAnea said the soaring cost of living means “growing anxiety for low-income families” and this is “terrible news” for public services. Employees able to switch jobs will be “intensifying their new-year searches for better-paid work”, she added, but health and care services are “already thousands of workers short” and are “likely to be the biggest losers”.
‘Squeeze on mortgages’
ONS data also revealed that UK average house prices increased by 10% in the year to November 2021 – this was up from 9.8% in October 2021.
The cost of living crisis is putting “a squeeze on mortgages”, the Daily Mail said. Soaring bills mean borrowers could miss out on new homes as banks cut lending. “After years of dirt-cheap rates and huge loans up for grabs, this year’s cost-of-living crisis could see mortgage lenders finally tighten the purse strings.”