Cost of living: Rishi Sunak risks 'tipping UK into recession'

·Political Correspondent, Yahoo News UK
·3-min read
Britain's Chancellor of the Exchequer Rishi Sunak looks on as he leaves following an outside broadcast interview, in London, Britain, November 26, 2020. REUTERS/Toby Melville
A growing list of senior economists are calling on the chancellor to announce more support to help with the spiralling cost of living. (Reuters)

Rishi Sunak's management of the cost-of-living crisis risks sending the UK into a recession, the government has been warned.

Rising inflation, soaring energy bills, and tax hikes are leaving tens of millions of Brits feeling the fiscal pinch as they grapple with price increases on essentials and wages failing to keep pace.

On Monday, the Office for National Statistics (ONS) reported that 87% of adults have reported an increase in their cost of living over the previous month - with 23% saying that it was very difficult or difficult to pay their usual household bills.

Read more: From milk and bread to iPhones: How retail prices are rising in the UK

George Dibb, head of the centre for economic justice at IPPR, has warned the rising cost of living combined with the chancellor's measures paint a bleak economic picture for the UK.

"This week's worrying retail figures are likely just a precursor for even more disastrous economic statistics over the coming months," Dibb told Yahoo News UK.

"The latest figures saw a rapid yet predictable fall in discretionary spending as households tightened their belts."

Britain's Chancellor of the Exchequer Rishi Sunak hosts a news conference in the Downing Street Briefing Room in London, Britain February 3, 2022. Justin Tallis/Pool via REUTERS
Rishi Sunak has repeatedly defended his package of measures to support struggling Brits. (Reuters)

The ONS on Monday said in the most recent period (16 to 27 March) more than half of Brits spent less on non-essential goods and services.

Dibb said that Brits will start looking for places to save money as the cost of living worsens, including cutting back on shopping, meals out, holidays, and streaming subscriptions, all impacting economic growth.

"With real wages set for the biggest fall since records began this year and consumer confidence faltering, there's a real risk that this spending might not appear," said Dibb.

"Rishi Sunak's decision to not adequately support households isn't just a crisis for people struggling to get by, it actually risks tipping the UK economy into recession."

wage growth
Wage growth is not keeping up with rising prices. (ONS)

Last Wednesday the Resolution Foundation told Yahoo News UK that, even if the country doesn't fall into a technical recession - meaning two consecutive quarters of negative growth - Brits are facing a "household recession".

The growing number of warnings come as the chancellor comes under pressure to provide another package of financial support.

However Sunak has staunchly defended his current measures, which include:

  • 5p off fuel duty for 12 months

  • Continuing with hikes to National Insurance contributions but rising the threshold by £3,000

  • An additional £500m to the Household Support Fund

In February, Sunak also announced a £150 council tax rebate for council tax bands A-D, and a £200 repayable discount on on energy bills.

A growing list of senior economists have stressed the government's policies are falling short given the scale of the crisis and have called for more action - including demands to the up-rating of state benefits in line with inflation.

Read more: Cost of living: Asda pledges £73m to keep prices low

In March, the Office for Budget Responsibility (OBR) warned Brits are facing the steepest fall in living standards since records began - and the Resolution Foundation warned 1.3m Brits, including 500,000 children, will fall into absolute poverty in 2022/23 without more help.

In response to the warnings of a recession, a Treasury spokesperson said: “The OBR are forecasting the UK economy to continue to grow over the next few years, and we are supporting households and businesses including through a £22 billion package to help ease pressures on families this financial year.

“Russia’s invasion of Ukraine is creating additional economic uncertainty here in the UK, but it is right that we are responding robustly against Putin’s unprovoked invasion, and that we continue to work towards our vision of a higher productivity, lower tax economy.”

Watch: Almost nine out of 10 adults say they have seen a rise in cost of living, ONS figures show

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