Think tank: inflation spike could squeeze incomes

Think tank the Resolution Foundation, which last week described a jump in inflation as “reasonably benign” (see Fact Service issue 24) has stated that the rise “poses more of a challenge to household incomes than to the Bank of England.

It says that a rise above 4% in the coming months could reduce real average household incomes by £700.

James Smith, research director at the foundation, said: “With the US experiencing the fastest rise in inflation in nearly half a century, and the UK also experiencing sharp increases, many people are getting increasingly worried about a possible price spiral. While UK inflationary pressures are nothing like as stark as the US, we could still see inflation breaching 4% this summer.”

“The temporary nature of this inflation spike means the Bank (of England) can look through it and avoid premature rate rises. But the £700 hit to living standards it will bring means households and the government cannot afford to ignore it.

“The chancellor can start by cancelling the planned cut to Universal Credit this autumn, which will only add to families’ financial pressures. A squeeze on household incomes later this year, even if temporary, is a significant threat to the strength of our current recovery.”

https://www.resolutionfoundation.org/press-releases/higher-than-expected-inflation-spike-poses-more-of-a-challenge-to-household-incomes-than-to-the-bank-of-england