The cost-of-living crisis is already being compounded by the effects of the war in Ukraine, with petrol reaching 163.5p per litre over the weekend – and it could get worse.
The UK was already set to enter into a “cost-of-living crisis” heading into 2022, but the situation has been worsened by the war in Ukraine. Ukraine and Russia are major food producers, together providing around 40% of the world’s wheat. As a result of the Russian invasion of Ukraine the price of grain has increased by around 40%, which will inevitably be passed on to the consumers.
Ronald Kers, the Chief Executive of food firm 2 Sisters, warned that the cost of food could rise by up to 15% this year, while flour producer GR Wright & Sons’ said that its prices are “absolutely certain” to rise.
Along with wheat, Russia is also an important global supplier of gas and oil. The UK’s household energy costs were already set to increase by around £700 annually before the war, and are now likely to rise even higher because of it.
The price of fuel has also been dirvien up by the conflict. The Shadow Transport Secretary, Louise Haigh, warned that rising oil prices could result in the average household spending an extra £386 on petrol in 2022. Defending Labour’s proposals to tax the soaring profits of energy companies, and to scrap the planned national insurance tax increase, she said:
“This is a savage extra cost for millions of working people. “The Conservatives could help working people being hit hard by soaring prices; instead they’ve rejected the choice of a one-off windfall tax on oil and gas producers raking in billions. And to add insult to injury, within weeks they want to clobber families with a huge tax hike.”
The think-tank The Resolution Foundation released a report on Monday predicting that the effective inflation for the poorest 10% of the country could reach as high as 10%, potentially staying at that level for some time.
The Research Director for The Resolution Foundation, James Smith, stated:
“The chances of a living standards recovery this year are receding as rapidly as inflation is rising, and the risk of another recession is looming into view. The Chancellor will therefore need to make some tough, and potentially expensive, choices in how to respond.”
Another think-tank, The New Economics Foundation, reported that as many as 48% of children could be living in households that do not have enough income to afford a “decent minimum standard of living”.
Sam Tims of The New Economics Foundation warned :
“The cost of living is increasing faster than at any point in recent history. While all families are set to feel a squeeze come April, the lowest-income households will be hit proportionately harder. There is little time left for the Chancellor to take action to avert the worst real-terms incomes squeeze in 50 years.”
The government has also received criticism regarding its increased military investment in he face of an ongoing cost-of-living crisis, with cuts to public services and/or welfare expected as a result.
The Chancellor is set to make his Spring statement on March the 23rd in which he will outline what further means the government may take in combating the cost-of-living-crisis. However, some believe Rishi Sunak will attempt to delay making any large decisions until later in the year, in the hope that the conflict in Ukraine will be over and there will be greater economic certainty in the energy and food markets.