Inflation figures released today show it has risen to its highest level in a year, with experts suggesting the Chancellor may need to take action to bring the number down.
The Consumer Prices Index (CPI) measure of inflation rose to 3.5 per cent in the year to April, according to the Office for National Statistics (ONS) – well above the Bank of England’s two per cent target.
The higher inflation is, the bigger is the risk of interest rates staying high and, in turn, the prospect of mortgage rates increasing.
Although the responsibility for returning the inflation figure to its target lies with the Bank of England, there are steps that Rachel Reeves could take to help reduce it.
Cutting energy and water bills
Higher energy bills were one of the key reasons for the spike in inflation, after regulator Ofgem increased the cap on the typical amount households pay for their gas and electricity to £1,849.
As of the start of April, water bills have also risen, by an average £123 a year, according to Water UK.
Bringing the energy price cap level down – which Ofgem is forecast to do from June – could help ease inflation, as could cutting water bills, experts say.
Thomas Pugh, an economist at RSM, said: “In terms of bringing down inflation, the obvious areas of focus would be action to reduce energy and water bills, either through reform of the electricity market – which is one of the main reasons we have some of the highest energy bills in the world – or more government investment or subsidies.”
As of last month, the amount employers have to pay in national insurance (NI) contributions rose from 13.8 per cent on employees earning over £9,100 annually, to 15 per cent on salaries over £5,000.
The move was set to increase Government revenue by £25bn a year.
However, it has led to many firms saying that, alongside the increase to the minimum wage, it has become harder to run a profitable business.
Laith Khalaf, head of investment analysis at AJ Bell, said: “The Chancellor will be relying on the Bank of England to keep inflation in check through interest rate policy.
“Clearly the employer NI hike introduced by the Chancellor has probably created some price hikes, but a U-turn is now almost unthinkable.”
Read Next
square MONEYRead More
Some have called for a reversal to the contributions.
Robert Salter, director of business advisory firm Blick Rothenberg, said: “Regarding the employer NICs, that would certainly be something which the Government could do – and indeed, I would suggest should do. It would hopefully help reduce inflation – on the basis that it reduces employer costs and hence lower prices can be passed on to consumers.”
However, others added it might not make a major difference to inflation.
Mr Pugh said: “Reducing the tax burden on businesses should help, although there is no guarantee that lower taxes would flow through into lower prices.”
James Smith, and economist at ING, added: “The NI hike and hike in the national living wage in theory adds extra indirect pressure, though there’s little sign of that.
“It’s easy to say inflation would be lower if those things weren’t happening, but the truth is probably the opposite. These changes will drop out of the annual inflation comparison, at the latest, next April.
“Tax rises, and increases in regulated prices, take money away from consumers and will drag on economic growth, which in the medium term takes some of the steam out of inflation.”
Help bring an end to the tariff war
Global trade negotiations are continuing following the decision by Donald Trump to introduce widespread tariffs on goods coming into the US.
The blanket 10 per cent tariffs apply to most goods from the UK, but there are ongoing negotiations over some products.
Reducing import tariffs could place some downward pressure on inflation although the decision remains in the hands of multiple political leaders – not just the Labour Government.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “There are some things that would be enormously positive both in terms of inflation and politics – including some kind of deal that removes the UK from international tariffs.
“However, that’s not something any government can unilaterally decide to do.”
Avoid above-inflation pay increases
The latest figures show that annual growth in employees’ average earnings, for regular earnings excluding bonuses, was 5.6 per cent, and total earnings (including bonuses) was 5.5 per cent.
This is above the current inflation figure of 3.5 per cent and has the potential to push it up further.
This is because when people have more money to spend, demand for goods and services can rise and lead to higher prices.
Jason Hollands of wealth management firm Evelyn Partners said: “One of the main things the Government can do to keep inflation in check is to resist calls for inflation-busting wage rises in the public sector which might fuel a wage/price spiral.
“However, this will be politically challenging for them given the relationship with the unions, current poll ratings and their recent track record of awarding pay rises in the public sector.”
Read More Details
Finally We wish PressBee provided you with enough information of ( The four things Rachel Reeves can do to cut inflation )
Also on site :
- Sputnik V creator warns of global ‘cat flu’ pandemic
- Trader Joe's is Giving This Viral Chocolate Bar Its Own Spin and Shoppers 'Can't Wait' To Try It
- Former Microsoft engineer fired over protest on Israel AI ties