over 1 year ago • 3 mins
Inflation and upcoming energy bill surges are creating a perfect storm for UK worker strikes. Here’s a closer look into why optimism is at an all time low.
✍️ Connecting The Dots
Another month, another worrying new record. Data out on Wednesday showed that UK inflation hit double digits for the first time in more than 40 years last month. Consumer prices were 10.1% higher in July than they were the same time last year, driven by rising food costs. That’s well above June’s 9.4% and economists’ forecasted 9.8%.
The latest figures mean the inflation rate has averaged 8% this year – four times the 2% target set by the Bank of England (BoE). But it’s not just a central bank problem: it’s everyone’s problem. Wage growth is lagging behind the increase in consumer prices. So when adjusted for inflation, real wages are actually falling. In fact, real wages in the UK fell by 3% during the second quarter – the biggest drop since records began 21 years ago.
These figures highlight the difficult financial position UK households find themselves in. And that’s even before the sharp increase in energy bills set for October, which could see household electricity and gas bills increase by 75%. All in all, it’s safe to say optimism is in short supply. In fact, data out on Friday showed UK consumer confidence fell to its lowest level since records started in 1974.
1. The BoE isn’t optimistic either.
The BoE released gloomy economic forecasts even before the latest inflation figures and drop in consumer confidence. Just this month it said it expects a UK recession to begin in the fourth quarter and last through most of next year. That would be the longest slump since the 2008 financial crisis, with officials expecting the economy to shrink by around 2.1%. To add to this, the BoE is also forecasting inflation to hit 13.3% in October amid the energy price surge. It expects inflation to remain at “very elevated levels” throughout 2023 before falling back to its 2% target in two years’ time.
2. This is only going to get worse.
Disgruntled UK workers are ready to take action over falling real wages. This week London bus and subway staff and nationwide rail workers held yet another round of strikes. And this Sunday will be the start of an eight-day strike by dockers at Felixstowe, the UK’s biggest container port, which threatens to create shortages of pretty much everything. But while it’s fair for workers to want wages to rise with inflation, it could also end up making things worse. For one, higher wages would increase company costs, and potentially encourage them to up prices even more. And for another, increased disposable incomes could lead to an increase in consumer demand – again pushing up prices.
🎯 Also On Our Radar
European power prices jumped once again to set a new high this week. German next-year electricity rates – a benchmark for the continent – hit €540 a megawatt-hour on the European Energy Exchange. To put that in context, it’s six times higher than what it was this time last year, with the price more than doubling in the past two months alone.
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