UK inflation will quadruple to about 4% in the second half of next year and cut disposable income, the National Institute for Economic and Social Research (NIESR) has predicted.
The rise in prices will ‘accelerate rapidly’ during 2017 as the fall in sterling is passed on to consumers, according to the NIESR. In fact, 4% inflation is a revised figure from the 3% inflation that the NIESR forecast in August. Households have really got a choice. Do they spend less or do they start saving less?’ Dr Angus Armstrong, director of macroeconomics at NIESR, said yesterday.
Armstrong has got it wrong here! Millions of families gave up attempting to save some time ago. The choice that they face with rapidly rising price inflation a real threat, is what meals they and their children will have to give up? For how long will they avoid eviction or repossession if they do not pay their rent or their mortgage? And where is the nearest food bank?
For the NIESR the issue is that given that the savings ratio is already at its lowest level since 2008, ‘the most likely scenario is that they spend much less, hence the weaker growth forecast for next year.’ This will create more problems for British capitalism no doubt, but nothing like the privation that faces the working class and the middle class.
Already, the teaching unions have been reporting for some time that many of their members are now taking food to school and even clothes to feed and clothe hungry children who are not able to eat breakfast any longer and report to school so hungry and cold that they are unable to concentrate on their education.
Immediately ahead, the Bank of England is expected to raise its forecasts for inflation in its quarterly Inflation Report on Thursday. However, the collapse of the pound, now at $1.22 and 1.11 euros, is expected to continue and even escalate as the major shocks from the deepening capitalist worldwide debt crisis emerge, making all food imports into the UK much more expensive, as the worldwide capitalist system heads for the rocks of its greatest ever economic crisis.
Simon Kirby, head of macroeconomic modelling and forecasting at NIESR, said yesterday of the fall in sterling … ‘This will pass through into consumer prices over the coming months and quarters.’ He added his attempt at reassurance saying, ‘While we expect this to be only a temporary phenomenon, it will nonetheless weigh on the purchasing power of consumers over the next couple of years.’
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: ‘NIESR is right to warn that households are about to endure a renewed period of falling living standards due to soaring inflation. Fuel, food and technology prices already are rising in response to the weaker pound, and hefty price rises will be seen across the whole spectrum of consumer goods next year.’
Howard Archer, chief UK economist at IHS Markit, commented that inflation hitting 4% would result in ‘a major squeeze on consumer purchasing power’. That could then make GDP growth of 1.4% in 2017 ‘hard to achieve given the likely heightened uncertainties’ once the UK starts Brexit negotiations, he said.
Crisis-ridden capitalism has in store for the tens of millions of workers and their children hyperinflation, and a banking collapse. It is clear that in this crisis situation the trade unions have a duty to the working class. They must fight for a 10% wage rise for all workers to prevent the pauperisation of the working class as the crisis develops.
They must also fight for a sliding scale of wages, pensions and hours, so that wages and pensions rise at the same rate as a cost of living index made up of working class necessities. This will mean automatic rises in pay and pensions as the crisis deepens and the cost of living rises.
If the capitalists and their government say that such an arrangement is unaffordable, they must be told that the working class cannot afford to continue with them and their capitalist system. The TUC must then call a general strike to bring down the government and to bring in a workers government and a planned socialist economy. This is the only way forward for working people!