Following regulator Ofgem’s announcement that the energy price cap will rise by 54% in April, Chancellor Rishi Sunak outlined financial support for households and the Bank of England raised interest rates by 0.25% to 0.5%.
“Rate hikes will increase pressure on households in the short term due to higher borrowing costs, although it helps keep inflation in check further,” said Ed Monk, associate director of Fidelity International. “The 54% increase in the energy price cap announced today means that there is more pain to come – and that is inflation against which the Bank and households can not do much – thing.”
Annabelle Williams, personal finance specialist at Nutmeg, said: “Economics textbooks say that when the Bank raises interest rates, inflation should be tempered, but rapidly rising prices for energy, food and other items was in part caused by issues with global sourcing and shipping, which are beyond the control of the Bank.
“Economists are divided on whether inflation is a transitory phenomenon that reflects the rebound of economies from Covid-19 lockdowns, or whether inflationary pressures are here to stay. So no one knows what impact – if at all – this small rate hike will have on prices that have spiraled out of control.”
The cost-of-living crisis “also erodes the value of longer-term savings,” Monk said. “Risk-free assets like cash savings may be boosted by rising interest rates, but they are unlikely to keep pace with prices. Equities also face headwinds from rising rates interest rate, although more cyclical sectors of the stock market can keep pace better, albeit with added risk. Few will escape the pressure of the cost of living.”
Sunak said the government would help the majority of households this year and provide around £350 in aid for the “vast majority” affected. However, this amount is well below the cost of living which is expected to rise from April due to a number of factors.
Sunak said: “Right now, I know the number one issue on people’s minds is the rising cost of living. That’s why the government is stepping in with direct support that will help around 28 million households to cope with their rising energy costs over the next year.”
“We have supported Britons and businesses throughout the pandemic and it is right that we continue to do so as our economy recovers in the months to come.”
Jamie Maddock, energy analyst at Quilter Cheviot, said the higher energy price cap will accelerate the cost of living crisis: “It is therefore not surprising that Rishi Sunak has been called to the action with an emergency announcement to ease the pressure on the most vulnerable households. The Use It Now, Pay Later program will help smooth consumers’ energy bills over time and allow people to repay when Energy prices are expected to be cheaper. Utility providers will also breathe a sigh of relief. Skyrocketing energy costs have pushed many businesses to the brink, and many more to the brink.”
National Insurance is preparing to increase by 1.25 percentage points from April 2022, for one year, to pay for the NHS and social care, despite opposition, Sunak confirmed.
The move came after economists earlier this week warned the government to avoid a hike during the ‘cost of living crisis’ as inflation remains higher than it has been for some time. time.
Prime Ministers Boris Johnson and Sunak said the hike ‘must go ahead’ and was the right plan, despite calls for it to be scrapped as households face rising food and energy bills .
The increased NI means an employee earning £20,000 a year will pay an extra £89 and someone with £50,000 will pay an extra £464.
From April, those earning less than £9,880 a year will not have to pay NICs and will not have to pay the new levy.
Petrol and diesel are up 26.8% year on year and given that the average household spends £22.30 a week on fuel, that means an extra £5.98 a week or £311 a year.
Maddock said: “Standing back, however, it is embarrassing for Boris Johnson that his government announced a fossil fuel subsidy shortly after hosting COP26. The long-term problem is the UK’s overexposure to the gas, given that consumers are the biggest consumer of gas.While short-term measures are needed to protect consumers, long-term programs must be put in place to accelerate the transition to gas.
The increase in the cost of living is expected to be at least £2,853 per year, Daily mail reported. It includes: National Insurance: £254; fuel bill: £693; mortgage: £552; council tax: £40; driving a car: £717; bus and train fares: £67; bracket freeze: £136; food and drink: £165, and; clothes and shoes: £51.