Britain’s Treasury chief is pledging to respond to Russia's war in Ukraine and a cost-of-living crisis hitting working families when he delivers his spring budget statement Wednesday, facing a new inflation rate that is the highest in 30 years.
Rishi Sunak didn’t offer details on specific policy proposals but said Britain would continue its “unwavering” support for Ukraine and seek to strengthen the domestic economy to counter the threat posed by Russia.
“So when I talk about security, yes, I mean responding to the war in Ukraine,” Sunak said in remarks released ahead of the statement. “But I also mean the security of a faster-growing economy. The security of more resilient public finances. And security for working families as we help with the cost of living.”
Rishi Sunak, Britain's Chancellor of the Exchequer poses for the media as he leaves 11 Downing Street for the House of Commons where he will later deliver the Spring Statement to the house in London, Wednesday, March 23, 2022. (AP PhotoAlastair Grant)
Sunak has come under increasing pressure to announce further measures to help consumers facing what one economist has called “the biggest year-on-year fall in household incomes in a generation.” Utility bills are set to rise by more than 50% in April, on top of a planned income tax increase and consumer prices accelerating at the fastest pace in decades.
Inflation increased 6.2% in the 12 months through February, a 30-year high, the Office for National Statistics said Wednesday. The spike was driven by rising prices of energy, goods and food and comes as the Bank of England has raised interest rates three times since December to try to cool off inflation.
The managing director of grocery firm Iceland, Richard Walker, told the BBC that the pressure to keep prices down was “relentless.” He called for action on high energy prices.
Britain's Deputy Prime Minister Dominic Raab leaves 10 Downing Street following a cabinet meeting where the cabinet were given details of the Spring Statement by the Rishi Sunak Chancellor of the Exchequer in London, Wednesday, March 23, 2022. (AP PhotoAlastair Grant)
“It’s incredibly concerning. We’re hearing of some food bank users declining potatoes and root veg because they can’t afford the energy to boil them,” he said.
The bad news doesn't end there. Economists now estimate inflation will peak at close to 9% this year as the war in Ukraine further boosts food and energy prices. That’s double the 4.4% forecast government advisers made in October.
The spring statement Sunak will deliver to the House of Commons is a midyear update on public finances. It often includes policy announcements that respond to new challenges facing the government. Some politicians are calling for increased defense spending amid rising tensions between NATO and Russia due to the war in Ukraine.
The economic and security picture looks much bleaker now than when Sunak released his budget in October.
Rising inflation is likely to curtail economic growth and squeeze government finances. Some economists now suggest gross domestic product will grow less than 1% next year, compared with the 2.1% forecast by the Office of Budget Responsibility when Sunak released his fall budget.
Politicians and consumer advocates have suggested that the government could help ease the cost-of-living crisis by delaying a planned 1.25% income tax increase set to take effect next month.
Other suggestions include cutting taxes on gasoline and diesel fuel, raising benefits for low-income households and doing more to help people pay utility bills that are set to rise by 54% next month because of the soaring costs of natural gas.
But the gloomier economic outlook means Sunak will have little room to maneuver, according to Paul Johnson, director of the Institute for Fiscal Studies, an economic think tank.
“Whatever he does, we can be sure that it won’t be enough to insulate all of us from all of the pressures on our budgets. And I think he is likely to be gloomily honest,’’ Johnson wrote on Sunday. “World events have made us poorer. No chancellor can wave a magic wand and protect us from that reality for ever.’’