LONDON (BLOOMBERG) - The true scale of Britain's cost-of-living crisis is beginning to dawn on millions of Britons.
Households learnt on Thursday (Feb 4) that their energy bills are going to surge by almost £700 (S$1280) in April and they are facing the biggest squeeze on incomes in three decades. That put some hard - and depressing - numbers on a concern that's been dominating the economic backdrop for months and undermining the mood among consumers.
Adding to the gloom, the Bank of England (BOE) revealed it now expects inflation to top 7 per cent in the coming months, a rate not seen in three decades. Unless workers get a major pay bump, those broad-based price increases on food, clothes and gasoline are going to tighten the vice on pockets even more.
The crisis pushed Chancellor of the Exchequer Rishi Sunak into an aid package to help with energy bills, but even at £9 billion, it only covers about half of the increase, and not for everyone. On top of that, voters are still exposed to a looming payroll tax hike.
Also on Thursday, the BOE raised interest rates at a second straight meeting as it tries to prevent a catastrophic squeeze from overwhelming households and the economy. It said that workers' income after tax and inflation will fall this year and next. By one measure, the 2022 drop will be the most since the early 1990s.
Mr Sunak was forced to act after energy regulator Ofgem announced a 54 per cent increase in Britain's energy price cap due to a recent surge in gas prices, pushing it to £1,971.
There are expectations for further increases on the horizon: The next price cap calculation in October could reach £2,450, according to Investec Bank.
While the support at least alleviates some of the pain, the political gain may be limited. Mr Sunak's intervention comes at a time of crisis for the ruling Conservative Party, with Prime Minister Boris Johnson facing a police investigation over alleged illegal gatherings in Downing Street during the pandemic and his party slumping in the polls.
The danger for Mr Sunak, who's seen as a potential successor to Mr Johnson, is that his measures will be decried as inadequate and become another source of anger among voters.
The Resolution Foundation, a think-tank, estimates that without government action, the number of households under "fuel stress" - spending at least 10 per cent their budgets on energy bills - would have tripled to more than six million. The aid reduces that, although it will still rise to a considerable five million.
"These measures are of course better than nothing, but they are sticking plasters," said Mr Richard Neudegg, head of regulation at Uswitch.com, a price comparison service.
Mr Sunak's £350 rebate "only begins to scratch the surface of the inflationary challenges millions of homes will be confronting".
The chancellor's announcement came on the same day the BOE raised interest rates by 25 basis points to 0.5 per cent. Such was the concern among policy makers that four of them wanted to tighten by 50 basis points, something the BOE has never before done.
Deputy Governor Ben Broadbent said Britons face the biggest squeeze in real household incomes since 2011.
Surging prices have already led to multiple warnings about more and more people not being able to afford basics such as consistent heat and electricity.
"The chancellor has offered cold comfort to families in poverty," said Ms Katie Schmuecker, deputy director of policy and partnerships for the Joseph Rowntree Foundation. "These families are now expected to find at least half of the eye-watering increases in energy bills, when many are already getting into debt to keep their houses warm and food on the table."
And the pain is broader than energy. Retailers raised their prices in January at the fastest pace in more than nine years as they passed on soaring costs to protect profit margins. For car owners, gasoline prices are up more than 20 per cent in the past year.
The opposition Labour Party criticised Mr Sunak's energy plan, calling instead for a windfall tax on oil and gas companies, and saying his measures wouldn't go far enough to help the public.
It pointed to the profits reported by Shell earlier on Thursday. The company's net income surged to US$6.4 billion (S$8.6 billion) in the last quarter of 2021, beating even the highest analyst estimate.
Mr Sunak's move is also a one-time intervention that will not help consumers if prices remain high. Additionally, it pushes some of the cost onto future bills, as the aid will have to be repaid by consumers over the next five years. Futures markets are pricing in elevated wholesale gas prices through next winter.
"Ultimately it's not enough for what we need," said Mr Simon Oscroft, co-founder and executive director of So Energy, noting the expectation for continuing high gas prices. "This is just unsustainable."