Unions warn cost of living crisis has become ‘living nightmare’
Unions are warning that the cost-of-living crisis has become a “living nightmare” for workers as the soaring rate of inflation is set to fuel more strikes.
Unite general secretary Sharon Graham said inflation has reached “new perilous levels” for workers and their families.
Yesterday, real wages fell to the lowest on record, So if today’s figures prove anything it’s that wages are not driving inflation.
Since the pandemic, the FTSE top 350 have seen profits soar by 43%. Britain has a profiteering crisis – when is something going to be done about that?
Unison assistant general secretary Jon Richards said:
The cost-of-living crisis has become a living nightmare for millions of working people.
Wages are slumping at a record rate while prices and bills shoot up. But the government and those angling to be the next PM appear indifferent to the plight of those struggling to make ends meet.
Ministers are deluded if they think workers can put up with yet more misery. Above-inflation pay rises are essential to rescue families on the brink.
Union says it is the UK’s largest union with more than 1.3 million members providing public services in education, local government, the NHS, police service and energy. They are employed in the public, voluntary and private sectors.
TUC general secretary Frances O’Grady said:
Families are facing a cost-of-living emergency. Ministers must cancel the catastrophic rise to energy bills this autumn, and to reduce future inflationary pressures and make energy more affordable, they should bring energy retail into public ownership.
To help people with the cost of living this winter, Government should bring forward increases to universal credit and the national minimum wage.
Companies that were supported by the taxpayer through the pandemic must step up to help too. They should show profit restraint to help keep prices down and to prioritise pay rises for staff.
Industrial disputes have spread across the economy, from barristers to rail workers, with unions attempting to negotiate pay rises close to inflation. A fresh round of rail strikes will start on Thursday, BT, Royal Mail and Post Office workers will walk out from next week, and health workers including nurses are to start voting on strikes over pay.
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Michael Pearce, senior US economist at Capital Economics, said:
While overall retail sales were unchanged in July, the details were far more encouraging, with a price-related fall in gasoline sales freeing up households to increase spending on other goods. With prices no longer rising rapidly, the increase in underlying retail sales is consistent with a rebound in real consumption at the beginning of the third quarter.
The decline in gasoline prices last month easily explains the 1.8% fall in gasoline station sales. Motor vehicle sales declined by 1.6%, which was a bit of a mystery given the rise in manufacturers’ unit sales last month. Excluding gasoline and autos, sales rose by 0.7%, the same as in June, with the gain last month led by a 2.7% jump in non-store sales which more than offset small declines in department store and clothing sales. The key difference from June, however, is that prices are no longer rising rapidly, meaning that the increase in nominal spending will feed through to much stronger growth in real consumption in July.
Admittedly, the muted 0.1% rise in food services sales suggests that the recovery in services consumption has slowed, but we calculate that real consumption rose by as much as 0.5% m/m last month. Even accounting for weaker growth in August and September, that leaves third quarter consumption growth on track for growth of 2.0%-2.5% annualised. That suggests the risks to our forecasts that GDP growth will rebound to 2.0% lie to the upside.
The muted retail sales figure was down to a 1.8% drop in gasoline sales, a 1.6% fall in cars and parts and a 1.7% decline in other vehicle sales.
Excluding cars and gasoline, retail sales rose 0.7%.
Food sales rose 0.2% while building and garden equipment sales were 1.5% higher. Online sales showed the biggest rise, of 2.7%.
US retail sales were little changed in July, restrained by sharp declines in gasoline prices and auto purchases that masked better results in other categories https://t.co/57kFcqZXhn
— Bloomberg Markets (@markets) August 17, 2022
US retail sales unchanged in July
Retail sales in the US were unchanged in July from the month before, slightly worse than the 0.1% gain that had been forecast by economists.
🇺🇸 *US RETAIL SALES WERE UNCHANGED IN JULY; EST. 0.1%
*US JULY RETAIL SALES EX-AUTOS, GAS RISE 0.7% M/M; EST. 0.4%— Christophe Barraud🛢🐳 (@C_Barraud) August 17, 2022
News round-up
Here is a round-up of today’s other stories.
The Greens have called for the permanent nationalisation of the main energy supply companies and for domestic fuel bills to be reduced to the level of last autumn, describing this as a solution to the failed experiment with a market-based energy system.
Shares in Cineworld plunged more than 40% after the world’s second-largest cinema chain said a lack of blockbuster films has led to lower-than-expected admissions.
The London-listed company, which has run up debt of almost $10bn (£8.27bn) as losses soared during the pandemic, said that despite the success of hits such as Top Gun: Maverick starring Tom Cruise, not enough films were hitting cinemas.
The executive overseeing construction of London’s “super sewer” under the Thames has been awarded bonuses that doubled his pay to nearly £1m despite delays and cost over-runs on the flagship project.
With executive pay in the water industry already under scrutiny, Tideway has revealed it paid its chief executive, Andy Mitchell, a total package of £928,000 for the year to 31 March 2022, up 7.5% from £863,000 a year earlier.
Tesla billionaire Elon Musk briefly electrified the debate about the future of Manchester United by claiming on Twitter that he is buying the struggling Premier League club – before saying that the post was part of a “long-running joke”.
The former health secretary Sajid Javid has distanced himself from comments made by Liz Truss in a leaked recording, in which she said British workers needed “more graft” and implied they lacked the skills of foreign workers.
When asked about the remarks on BBC Radio 4’s Today programme, Javid said he did not know the context in which the comments had been made, but he thought British workers were the most hardworking in the world.
What we learned about inflation today
UK inflation has risen above 10% for the first time in 40 years, driven by soaring prices for food and fuel as households come under mounting pressure from the cost of living crisis.
The Office for National Statistics said the consumer prices index rose by 10.1% in the year to July, up from a reading of 9.4% in June and entering double figures at an earlier stage than anticipated. The figure was last higher in February 1982.
It is only the fourth time in 70 years that inflation has breached the 10% threshold, the other periods being 1951-52, 1973-77 and 1979-82.
Here is a breakdown showing how everyday items have shot up over the past year. In each case, the figure is the percentage change in the average price over the 12 months to July 2022, and on many occasions the rate has risen to an even higher level than in June.
Analysis: The annual inflation rate has burst through the 10% barrier sooner than the financial markets and the Bank of England expected but the sharp jump in the cost of living last month is not really that much of a shock.
The veteran retailer Stuart Rose has urged the government to do more to shield the poorest from double-digit inflation, describing the lack of action as “horrifying”, with a prime minister “on shore leave” leaving a situation where “nobody is in charge”.
Responding to July’s 10.1% headline rate, the Conservative peer and Asda chair said: “We have been very, very slow in recognising this train coming down the tunnel and it’s run quite a lot of people over and we now have to deal with the aftermath of that.”
Stock markets are drifting lower, with the FTSE 100 index inn London down 30 points, or 0.4%, at 7,505. Germany’s Dax has tumbled 1.1%, France’s CAC has lost 0.56% and Italy’s FTSE MiB has shed 0.36%.
The pound is also struggling, as the surge in inflation to 10.1% triggered fears of a sharp economic downturn. It has dipped 0.2% against the dollar to $1.2067 and is down 0.1% against the euro at €1.1875.
As inflation rockets, Liz Truss has accused the Bank of England of having been too slow to increase interest rates.
Costas Milas, professor at the University of Liverpool’s School of Management, argues in this blog post that, 25 years since the Bank of England was given operational independence, it makes sense to revisit the issue of the bank’s mandate and look at things that can get better, as long as changes do not compromise the bank’s independence.
(Note: the blog on the London School of Economics’ website was written before today’s rise in inflation to 10.1%.)
He looks at alternatives to the 2% symmetrical inflation target, such as targeting nominal GDP growth (ie. Real GDP growth plus inflation), or changing the make-up of the monetary policy committee to include more external members to reduce group think.
Liz Truss is not telling us what she has in mind. This is problematic. She has promised tax cuts from “day one” (immediately after 5 September) largely through extra borrowing. Notice that the BoE is currently planning to start selling UK government bonds (proceed with “quantitative tightening”, that is) before the end of September.
The very selling of debt by the BoE and simultaneously by the government will push long-term interest rates much higher. In fact, borrowing might turn out to be even more expensive if financial markets take the view that Liz Truss and her ideas of “rewriting” monetary policy is a direct threat to the BoE’s independence.
In other words, even higher interest rates (as a result of financial markets viewing BoE’s independence at threat) risk making a looming recession even worse. Quite frankly, the new prime minister (whether Liz Truss or Rishi Sunak) and BoE governor Andrew Bailey need to sit down and work together to counteract the adverse consequences of the looming recession.
UK credit card spending jumps 33%
Credit card spending has shot up by a third as more people turn to borrowing cash amid the cost-of-living crunch.
UK credit card holders spent just under £20bn in May, a 33% jump in the total spend compared to the same month last year, according to official figures from trade body UK Finance.
Debt also climbed, with outstanding balances on credit card accounts growing nearly 10% in the year to May. The number of credit card transactions rose by more than a quarter year-on-year, to 357m payments in May by UK cardholders both here and abroad. Total debit card spending edged up by just 1% compared to the same period last year.
Credit card spending has been going up steadily since the start of the year, coinciding with the soaring cost of utility bills and double-digit food and drink inflation.
The data comes as inflation spilled over into double figures in July, hitting 10.1%, driven by big price rises across food and staple items such as toilet roll, as well as fuel, electricity & gas, and rents.
Real wages have declined, with UK workers seeing their pay lag behind inflation at record levels over the three months to June. Inflation is set to get even worse, peaking at 13.3% in October, according to Bank of England forecasts.
The UK is expected to go into recession in the fourth quarter and continuing until the final three months of 2023, the Bank said earlier this month.
Inflation is largely being driven by spiking energy bills, with another energy price cap rise of around 85% forecast for October. Bills are then likely to go up even further in January, experts say, pushing the average annual household bill to more than £4,200.
Today’s inflation figures make grim reading.
Elsewhere, the eurozone economy grew by 0.6% in the second quarter from the first, slightly lower than the 0.7% growth reported last month.
Ricardo Amaro, senior economist at Oxford Economics, said:
This is still a solid outturn which leaves the GDP figures painting a flattering picture of growth dynamics in H1 2022 as today’s release confirmed GDP rose by a solid 0.5% q/q in Q1 – in this case boosted by known distortions to Irish GDP. But we think growth will slow in the second half of the year and into 2023, with our latest forecasts anticipating near-stagnation in Q3 to be followed by a modest contraction in Q4 and almost no growth at the start of 2023.
The labour market also recorded healthy improvement in Q2. Eurozone employment rose by 0.3% q/q, underpinning a further drop in the unemployment rate to an all-time low of 6.6% in Q2. But here too, we think improvement will stall in the coming months as softening in the wider economy also impacts the labour market.
Children’s doctors call for urgent government action
Children’s doctors are calling for urgent government action as inflation sky rockets. As more and more children are thrown into poverty, they are predicting increased poor nutrition, respiratory illnesses and mental health issues that will have life-long health and well-being impacts for children and their families (with knock-on effects on the economy, one might add).
Lower income families are now facing the most serious cost of living crisis in decades. The Royal College of Paediatrics and Child Health said:
We ask that the UK government continues to support children and their families by urgently bringing social security packages in line with current energy costs and inflation. We also ask that both Conservative party leadership candidates urgently address how they will support families during the current crisis. Plans need to be in place now, not in late September.
One paediatrician told the RCPCH:
My patient group tends to be largely from low income, vulnerable families. They have been hit disproportionately hard by the rising cost of living, which is a much larger proportion of their income than mine. They are particularly affected by rising costs of fuel to attend numerous appointments, power to run necessary equipment and nutritious food for their children.
Mike McKean, RCPCH vice-president for policy, said:
As we move into the winter months more and more families will be faced with impossible decisions. Pay their bills or feed their families? We are already hearing reports of parents skipping meals to feed their children, missed medical appointments due to high transport costs and children forced to live in cold, damp conditions. This is not the marker of an affluent nation such as ours.
Across the UK approximately 30% of all children are living in poverty — four million in total. This is already far too high, yet projections indicate this number will reach five million by 2030.
Worryingly, these estimates were made before the rate of inflation rose to 8% and before the most recent predictions for the upcoming energy price cap. The UK faces a perfect storm of soaring energy bills, rising taxes and increasing prices. I am fearful of what will happen this winter if this crisis is not urgently addressed.
UK bond market ‘inversion’ flashes warning signs
Short-term UK government bonds sold off sharply after the inflation surge, which cemented expectations for a second half-point rate hike from the Bank of England next month.
The rise in inflation to 10.1% piled pressure on the central bank to hike rates aggressively to bring inflation down, increasing the risk of a sharper economic slowdown. The Bank has already forecast a recession lasting longer than a year.
Sterling spiked briefly against the dollar before falling back, as the larger-than-expected jump in inflation deepened fears around Britain’s economic outlook.
Traders are now pricing in a further 200 basis points of rate hikes by May, taking the Bank Rate to 3.75%.
Two-year gilts sold off, pushing their yields (the returns on the bonds) sharply higher to 2.39%. Longer-term bonds also sold off but less so, and the yield on the 10-year bond rose to 2.24%.
When two-year yields move above their 10-year counterparts, this is called an inversion of the yield curve. Investors normally demand higher borrowing costs for longer-rated bonds as the risk of buying something that matures years from now is higher.
This is the biggest inversion in the yield curve since the 2008 global financial crisis – and signals an economic warning. It suggests investors are anticipating sharp rises in interest rates in the coming months, which are expected to trigger a slump in economic output.
UK house price gains slow sharply – ONS
House price inflation in the UK has slowed sharply, although the average price hit a record, and rents rose at the fastest rate since 2016, according to the latest data from the Office for National Statistics.
The average UK house price was £286,000 in June, which is £20,000 higher than the same month in 2021. This represented an increase of 7.8% over the year to June 2022, down from 12.8% in the year to May 2022.
As buyers rush to get in for the summer, house prices increased 7.8% in June making the AVG house price at the time worth £286,000. Despite this inc the rate of growth slowed considerably from the 12.8% increase seen in May @ONS pic.twitter.com/Z2lvPLvgL5
— Emma Fildes (@emmafildes) August 17, 2022
Despite house prices increasing between May and June for the eighth consecutive month, annual house price inflation has slowed due to the rise in prices seen in June 2021, which were the result of tax break changes. The temporary changes to stamp duty, and land transaction tax last year may have allowed sellers to request higher prices as buyers’ overall costs were reduced, the ONS said.
Average house prices increased over the year in England to £305,000 (7.3%), in Wales to £213,000 (8.6%), in Scotland to £192,000 (11.6%) and in Northern Ireland to £169,000 (9.6%).
Private rents paid by tenants in the UK increased by 3.2% in the 12 months to July 2022, the fastest annual growth rate since this series began in January 2016.
Unions warn cost of living crisis has become ‘living nightmare’
Unions are warning that the cost-of-living crisis has become a “living nightmare” for workers as the soaring rate of inflation is set to fuel more strikes.
Unite general secretary Sharon Graham said inflation has reached “new perilous levels” for workers and their families.
Yesterday, real wages fell to the lowest on record, So if today’s figures prove anything it’s that wages are not driving inflation.
Since the pandemic, the FTSE top 350 have seen profits soar by 43%. Britain has a profiteering crisis – when is something going to be done about that?
Unison assistant general secretary Jon Richards said:
The cost-of-living crisis has become a living nightmare for millions of working people.
Wages are slumping at a record rate while prices and bills shoot up. But the government and those angling to be the next PM appear indifferent to the plight of those struggling to make ends meet.
Ministers are deluded if they think workers can put up with yet more misery. Above-inflation pay rises are essential to rescue families on the brink.
Union says it is the UK’s largest union with more than 1.3 million members providing public services in education, local government, the NHS, police service and energy. They are employed in the public, voluntary and private sectors.
TUC general secretary Frances O’Grady said:
Families are facing a cost-of-living emergency. Ministers must cancel the catastrophic rise to energy bills this autumn, and to reduce future inflationary pressures and make energy more affordable, they should bring energy retail into public ownership.
To help people with the cost of living this winter, Government should bring forward increases to universal credit and the national minimum wage.
Companies that were supported by the taxpayer through the pandemic must step up to help too. They should show profit restraint to help keep prices down and to prioritise pay rises for staff.
Industrial disputes have spread across the economy, from barristers to rail workers, with unions attempting to negotiate pay rises close to inflation. A fresh round of rail strikes will start on Thursday, BT, Royal Mail and Post Office workers will walk out from next week, and health workers including nurses are to start voting on strikes over pay.
