Inflation is set to leave average real pay 9 per cent lower than two years previously by next spring, the Resolution Foundation said, wiping out all pay growth since 2003. Without government support, another 3mn people will be pushed into absolute poverty, defined as annual household income for a couple after housing costs of £15,781.
The UK’s high street banks are, in effect, utilities that have chosen not to deal with the poorest in society, the first and the hardest hit by soaring energy bills. Citizens Advice is reporting surging traffic to its cost-of-living web pages, with an increase in July. But while it is helping rising numbers of people struggling with energy bills, the demand for help on credit, debit or store cards has remained flat. More than half of UK households are expected to be in fuel poverty by next year, defined as more than a 10th of income going on energy bills. Chancellor Nadhim Zahawi has said that people on £45,000 a year, which puts them within the top fifth of the pay distribution, will find this winter “really hard”, requiring government support. Higher bills and higher interest rates will hit measures of mortgage affordability. The burden of rising energy costs on businesses, as well as the policy response required to tame inflation, could yet dent the strength of the jobs market.
The typical response for banks in a slump is to pull up the drawbridge: rising risk aversion and tighter lending criteria tend to mean more demand for alternative sources of credit. The trouble is that the market for non-standard or high-cost credit has shrunk after the regulator cracked down on harmful practices, reducing the pool of options. The sector is wary, given how long energy prices could stay high.