Rising energy prices, high inflation, labour shortages and Covid-19 too
Little has changed since our last UK update in October 2021: energy prices are still rising, inflation remains high, employers continue to face labour shortages and the number of Covid-19 cases is still high, due in part to the Omicron variant. The cost of-living crisis looks set to worsen too. In April, a review of Ofgem’s energy price cap is likely to push household energy bills up further and in the same month national insurance contributions will increase by 1.25%.
On 16 December last year, the Bank of England increased interest rates for the first time in three years, to 0.25% from 0.1%, to tackle growing inflation, after members of the Monetary Policy Committee (MPC) voted unanimously in favour of a rise. This was followed by a further rise to 0.5% on 3 February 2022.
Although higher interest rates can reduce inflationary pressures, they also increase the cost of borrowing, further squeezing consumers’ budgets.
Meanwhile, Chancellor Rishi Sunak has rejected calls to cancel a planned rise in national insurance contributions intended to help fund improvements to health and social care, should be cancelled.
Here are the key takeaways from our latest economic, pay and labour market update published in February 2022.
1. Consumer confidence weakens
According to research by market analyst GfK, consumer confidence fell by four points to -19 in January 2022 compared with December 2021 (-15). It found that concerns about inflation, fuel bills and interest rate rises have led to the decline.
Joe Staton, client strategy director at GfK said: “The UK’s financial pulse weakened further this January driven by concerns over personal finances and the general economic situation.
“The four-point fall in the major purchase index certainly suggests people are ready to tighten their belts. Will the mood brighten when the latest wave of the pandemic subsides and Covid numbers improve? It seems unlikely because it’s the cost of living squeeze that’s worrying us now and this will affect us for months to come.”
2. Labour shortages prevail
UK recruitment consultancies continued to signal tight labour market conditions at the end of 2021, according to the Recruitment & Employment Confederation’s latest KPMG and REC, UK Report on Jobs survey (published on 13 January 2022). Both permanent staff appointments and temporary billings continued to rise at historically sharp rates. IT and computing was the most in-demand category for permanent staff during December 2021, as was the case in November, although steep increases were also seen across other sectors. Nursing/medical/ care was at the top of the rankings for temporary staff vacancies at the end of last year.
3. Supply chain disruption set to continue
The logistics crunch experienced in 2021 remains a problem this year as the pandemic continues to have an impact on global supply chains, with freight from China to Europe currently badly affected. A recent survey of 228 UK supply chain managers conducted by the Chartered Institute of Procurement & Supply (CIPS) found that 85% of respondents had experienced supply chain disruption in 2021. A majority of these (71%) expect supply chain interruptions to continue for six months or more. In addition, of those who experienced disruption, almost half (48%) have had to increase prices as a result, while 14% have been forced to stop selling some products altogether.
Research by the Office of National Statistics found that around one-third (31%) of UK adults reported experiencing shortages of goods between 6 and 16 January 2022. When food shopping, around six in 10 people (59%) reported experiencing some difficulty compared with usual. This included less variety in the shops (39%) and spending more than usual to get items that would normally be purchased (19%).
For more read Cendex's report: Key trends in 2022 for UK Economic pay and labour market.
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