It would have been hard to miss the headlines around the Spring Statement over the past few days. Clearly, the cost of living crisis is gaining in speed and severity both here in the UK and in many other economies around the world.
Things were already bad enough before the Ukraine war which has only served to place even further upwards pressure on inflation, commodity prices, and supply chains.
It is now laughable to think that only a few months ago, we were talking about this bout of inflation being ‘transitory’ – just a temporary readjustment of the economy as we emerged from the Covid-induced lockdowns and restrictions. The inflation we are experiencing now however looks well and truly entrenched with things very likely to get worse before they get better.
I always tend to look to the old RPI (retail prices index) measure of inflation, rather than the now preferred CPI (consumer prices index), as it includes the cost of housing and interest costs, which of course are now also on the rise.
By this measure, inflation is already at 8.2% and is very likely to top 10% before it begins to settle and reverse – quite staggering figures considering that only a year or so ago, inflation was running underneath the Bank of England’s 2% target!
The Chancellor seemingly had to act and was forced to turn his Spring Statement into somewhat of a mini-budget – again!
At the time when it was announced that the main annual Budget would be moved to autumn with a ‘Spring Statement’ the theory was that the Spring Statement would only really be used to consult on and announce future tax changes that could then be legislated for at the Autumn Budget – oh how circumstance has put paid to that idea!
The announcements made this week are shocking in two respects – in one respect, it is amazing just how far the Chancellor decided to go in some areas. Increasing the National Insurance threshold to match the tax-free personal allowance has always seemed like a good idea, however, we never thought we would see it implemented so quickly. A 5p cut to fuel duty is similarly bold, given that the duty has now been frozen for around 12 years.
On the other hand, what was also shocking about these announcements is the apparent insignificance of them in the face of what are unprecedented circumstances.
A 5p cut in fuel duty would seem spectacularly generous in normal times, however, it pales into insignificance in the face of a fuel price that has risen by some 50p a litre since the start of 2020.
The increase in the National Insurance threshold is also welcome, however, this only goes part of the way to reversing the 1.25% hike in the rate of National Insurance also being introduced.
Some of the other measures announced also seem very generous until you factor in that the impact of the measures has already been undone by rising prices, in some cases 5 or 10 times over!
Calls for further support are already growing louder by the minute and we are only a day or two after the above announcements – a sign of just how futile they seem to be in the face of rising living costs on a scale not seen for decades.
All is not lost though. The UK and other countries are quickly implementing measures to try and stem the tide of rising prices and the current situation looks likely to accelerate the move to more energy independence and more sustainable energy production – these things can only be positive in the long run.
Markets seem to have stabilised somewhat over the past week or two and indeed we have seen a reasonable recovery from recent lows, albeit things are not quite back to their previous highs.
As I prepare to go on my first overseas holiday in well over 4 years I am reminded once again of those things that I am grateful for:
1. That I can even consider going on a holiday, given what other people in the world are going through right now.
2. That I can afford to go on a holiday, given the economic struggles going on in the world right now.
If you are also lucky enough to be going away over the Easter break, then I wish you a pleasant holiday. I look forward to talking with many of you again on my return after Easter.
