UK households weighed down by rising energy bills

In October 2021, the maximum cap on gas and electricity notes in the UK, set by the regulator, was 1,277 pounds (1,527 euros) per year. In April 2022, it rose to 1,971 pounds, a jump of 54%. In October, its future level, which has not yet been officially announced, should reach “about 3,500 pounds”, according to the Governor of the Bank of England, Andrew Bailey. This represents a near tripling of energy bills in one year for UK homes.

The energy shock is global, but the latter, for lack of a tariff shield or equivalent system, are hit hard. “Families are facing a price hike not seen in a generation”, observes Jack Leslie, an economist at the Resolution Foundation, a think tank. In June, inflation reached 9.4% over one year, the highest for forty years.

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Thursday, August 4, the Bank of England has drawn the consequences. It now forecasts inflation of 13% in the fourth quarter and estimates that the country’s economy will enter a recession in the last three months of 2022. At the same time, it is trying to stem the rise in prices, at the risk of hold back growth a little more: it raised its key interest rate by half a point, to 1.75%. This is the sixth increase in a row, and the largest one-shot since 1995.

High level of inequality

This gloomy picture is the direct consequence of Russia’s invasion of Ukraine at the end of February. “Since May [lors de la précédente prévision de la Banque d’Angleterre], wholesale gas prices nearly doubled due to supply restrictions from Russia”underlines Mr. Bailey.

The United Kingdom nevertheless has a particularity: the poorest are particularly exposed to the costs

The UK’s predicament is far from unique. In June, inflation in the United States was 9.1% and that of the euro zone, 8.6%, at a level close to that of the UK. Central Europe or Germany are much more exposed to Russian gas cuts than the British, who mainly get their supplies from the North Sea. Moreover, many economists are also predicting a recession in the euro zone and the United States in the months to come.

The United Kingdom nevertheless has a particularity: the poorest are particularly exposed to energy costs. On 3rd August the International Monetary Fund published a study measuring the impact of the energy shock for the richest 20% of households and the most vulnerable 20% across Europe. In France, Finland or Sweden, the increase in the cost of living is similar for the two groups, around 4%. In the United Kingdom, it is 7% for the wealthiest and 16% for the most disadvantaged. Only Estonia has such a wide gap.

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