Rising cost of living leave 1.5m households struggling to pay for food and energy

The rising cost of living will leave 1.5 million households struggling to pay food and energy bills, according to a forecast from the National Institute of Economic and Social Research (NIESR). The think tank has said that the government should offer targeted interventions to support the UK’s poorest.

NIESR also said that the Bank of England will need to raise interest rates to 2.5 per cent and keep them there until the middle of the decade in order to bring inflation under control (Financial Times). In addition, its forecast also suggested that the UK is on course to enter a technical recession in the second half of this year.

The research found that GDP grew by 0.8 per cent in the first quarter: less than the 1.0 per cent we forecast a month ago, predominantly due to weaker services growth. Supply-chain problems in the motor industry contributed significantly but there was weak growth in much of the retail sector.

With consumer confidence indicators continuing to weaken we expect growth to be largely flat in April and close to flatlining in the second quarter overall.

The first estimate of GDP expenditure components for the first quarter was for a decline in business investment of 0.5 per cent. With uncertainty from the war in Ukraine likely to weigh on investment further, we may see yet further delays to recovery from the Covid shock, reducing the capital stock and supply capacity yet further.

Rory Macqueen, Principal Economist, NIESR said “March’s deterioration in consumer confidence translated into a sharp fall in retail and wholesale, which was exacerbated by continuing supply-chain problems in the motor industry. Offsetting this, the continuing normalisation of GP and hospital activities cancelled out falling Covid-related activity to mean that the health sector returned to month-on-month growth. Falling business investment in the first estimate for the first quarter is a concern: with the government’s tax ‘super-deduction’ expiring in under a year we still see little sign of a recovery from the Covid shock.”