Cost of living crisis: Boris Johnson and Rishi Sunak face pressure to act as UK inflation rate increases to 9%

Boris Johnson and Rishi Sunak are facing mounting pressure to act after the rate of inflation increased to its highest level in 40 years.

Consumer Prices Index inflation rose to 9% in the year to April, up from an already high 7% in March, Office for National Statistics (ONS) figures show.

Mr Johnson hinted at future help during Prime Minister’s Questions (PMQ’s) on Wednesday (18 May), but no immediate support has been announced.

Chancellor Rishi Sunak warned that he could not “protect people completely” from the cost of living squeeze, but the Prime Minister has promised to “look at all the measures that we need” to get people “through to the other side” of the inflation spike.

The rise in inflation was the fastest measured rate since records began in 1989, and the ONS estimates it was the highest since 1982, with the PM suggesting that part of the rise in energy prices was because of the “tough” decision to sanction Russia following the invasion of Ukraine.

ONS data showed a large portion of the rise was due to the price cap on energy bills, which was hiked by 54% for the average household at the start of April, with the increase adding to the pressure already facing households to cut back on bills and everyday spending.

Much of the jump is due to the high cost of energy on international markets, particularly gas, although oil prices have also shot up. This in turn has pushed up the price of many other items, including food, which are made or transported using gas and oil-based products, while the war in Ukraine has also hit global food supplies.

Mr Sunak has already pledged around £22 billion in support, including £9 billion to deal with household energy bills and measures to mitigate the impact of April’s rise in National Insurance Contributions (NICs), but he is facing calls for more immediate action, rather than waiting for the autumn budget.

Reports have suggested that measures including increasing the warm home discount by up to £600 to cope with rising energy bills are under consideration, while the I newspaper reported that the Chancellor was plotting a 1p cut in income tax from April 2023, a year earlier than planned.

The Times suggested that the package to help with energy bills could be unveiled in July followed by tax cuts in the autumn.

Why is inflation increasing?

In March, the Office for National Statistics (ONS) recorded inflation at 7% as the immediate  effects of Russia’s war in Ukraine filtered through to the like of fuel forecourts.

This was on top of existing inflation caused by the easing of Covid restrictions, which saw demand outstripping supply across the global economy.

On 1 April, the average annual cost for gas and electricity rose by £693 to £1,971 for around 22 million UK households, following a price hike of 54%. For customers with prepayment meters, the price cap increased by £708 to £2,017.

The price cap is based on the price of wholesale energy and supplier costs which have increased by 250% since January and rose by 70% in August alone.

It is currently forecast to hit almost £2,600 in total at the next adjustment which is due in October.

The Bank of England forecast earlier this month that inflation is likely to peak at £10.25% later this year, with food prices set to rise even higher due to crucial supplies of products like wheat being held up because of the war in Ukraine.

It has warned that the strain could result in a recession and surge in unemployment, increasing pressure on the Chancellor to provide further relief to consumers and businesses.

Rishi Sunak said that inflation is hitting countries around the world and pointed to energy prices as the main culprit.

He said: ““Countries around the world are dealing with rising inflation. Today’s inflation numbers are driven by the energy price cap rise in April, which in turn is driven by higher global energy prices.

“We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.

“We’re saving the average worker £330 a year through reducing National Insurance Contributions, changing Universal Credit to save over a million families around £1,000 a year, and providing millions of families with £350 each this year to help with their energy bills.”

Opposition parties and some Tory MPs want to impose a windfall tax on oil and gas companies which have enjoyed bumper profits as a result of high global prices. The money raised would be used to alleviate the pressure on households.

At PMQ’s Mr Johnson was pressed on the issue by Labour leader Sir Keir Starmer and said the government was “not, in principle, in favour of higher taxation” but promised a “sensible approach, governed by the impact on investment and jobs”.

He said: “Of course we will look at all the measures that we need to take to get people through to the other side, but the only reason we can do that is because we took the tough decisions that were necessary during the pandemic.

“We always knew that there would be a short-term cost in weaning ourselves off Putin’s hydrocarbons and in sanctioning the Russian economy. Everybody in this House voted for those sanctions. We knew that it would be tough but… giving in, not sticking the course, would ultimately be the far greater economic risk.”

Shadow chancellor Rachel Reeves said that the latest increase was “a huge worry for families already stretched” and insisted a windfall tax is “essential”.

She told BBC Breakfast: “It’s happening because the government are not acting and it is now urgent with the numbers that we see today that the government do more and the government say they’re looking at it well, what more evidence do they need that a windfall tax is essential to help people who are really struggling with these bills that just keep going up and up and up.”

Could there be a recession?

The British Chambers of Commerce (BCC) warned that “unprecedented” inflation could spark a recession later in the year.

BCC head of economics Suren Thiru said: “The marked acceleration in the headline rate in April reflected the continued upward pressure on prices from surging energy and commodity costs, as well as the energy price cap rise and the reversal of the VAT reduction for hospitality in the month.

“The scale at which inflation is damaging key drivers of UK output, including consumer spending and business investment, is unprecedented and means there is a real chance the UK will be in recession by the third quarter of the year.”