Today’s big question

How high could UK inflation rise?

MP warns cost of living may be the ‘biggest political issue’ in the next decade

Senior members of the Conservative Party have warned that a global inflation problem could become the “biggest political issue” in the next ten years.

The “energy price crisis, broader inflationary pressures and a double-whammy of tax rises and benefit cuts” threaten to create a “challenging winter” for Britons, The Telegraph reported. Meanwhile, ending the £20 increase in Universal Credit will push a further 840,000 people into poverty, the Legatum Institute said in a study.

Damian Green, the Conservative MP for Ashford, said the cost of living was “an argument we have forgotten about because we have now had a generation of low inflation”. He added: “The paradox is that many of us thought we would come out of the pandemic with big employment issues and a very sluggish economy… [but] we are facing a big global inflation problem, which I suspect will become the biggest political issue for the coming decade.”

Meanwhile, Conservative peer Gavin Barwell believes energy price rises have the potential to become a crisis. “We’ve got the tax increases that they’ve just brought in, we’ve got the Universal Credit reduction that’s about to come online, plus rising energy bills,” he said. “I think there is a real political danger here of cost of living issues becoming a real difficulty for the government.”

What is the UK inflation rate?

According to the Consumer Prices Index (CPI), which measures the cost of living, price rises in August saw the “biggest jump since records began in 1997 as the economy continued to reopen”, the BBC reported. CPI rose by 3.2% in the year to August, up from 2% in July.

Latest economic forecasts from the Bank of England show that it expects inflation to peak at 4% in 2021 – a ten-year high – against a previous prediction of 2.5%, Sky News reported. Although twice the government-set target, the Bank said it would be “transitory” and inflation will return to 2% in the medium term.

Moderate inflation is “not a bad thing”, but high inflation has “consequences”, said The Guardian. “Most obviously, if you are on fixed pay then your money will not go as far each month.”

Speed of recovery

The Organisation for Economic Co-operation and Development (OECD) has warned that high inflation is set to continue over the next two years. However, the Paris-based club of nations says serious harm can be avoided if policymakers make the right calls, the FT reported.

The outlook for inflation “varies markedly”, the OECD said in its economic outlook report, and consumer price inflation in G20 countries is projected to peak towards the end of 2021 and slow throughout 2022. “The speed of the recovery has increased inflationary pressures, quickly pushing up prices to where we expected them to be before the pandemic. Policymakers in advanced economies should monitor these developments without delay.”

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