Biggest fall in post-tax income since records began
03 Feb 2022
The UK is facing a “generational cost of living crisis” according to The Telegraph newspaper, as the Bank of England's Monetary Policy Committee vote 5-4 in favour of raising interest rates to 0.5% as part of a continued attempt to rein in inflation.
The latest BoE data reveals that real post-tax labour income will decline by 2% this year – the largest fall since records began back in 1990. It also forecasts that April's 5% inflation forecast (surpassed in December) has now been revised to 7.25%.
According to the Bank’s calculations, real post-tax labour income - perhaps the best measure of standards of living since it accounts for the rising tax burden as well as inflation and earnings - will fall by 2% in 2022— Ed Conway (@EdConwaySky) February 3, 2022
Biggest fall since comparable records began in 1990
The data has been released today as part of the latest Monetary Policy Committee report, in which the Bank of England and the MPC lay out the state of Britain's economy. The combination of inflation and April's National Insurance rise are pointed to as the main factors; the former of which the Daily Mail challenged given the NI rise will raise £12 billion compared to the £13 billion lost through Covid fraud and PPE failures.
The report also revealed that four of the MPC members – deputy governor Dave Ramsden, Catherine Mann, Jonathan Haskel, and Michael Saunders – all voted against the proposal not because they don't approve of raising rates, but because they wanted rates raised by 0.5% to 0.75%. Their argument was that slow and steady rate rises might ket the economy get used to inflation and be lax about it, rather than bring it back to the BoE's 2% target.
In the meantime the Bank has decided to begin unwinding the £895 billion stimulus package that first came to life at the start of the pandemic. £875 billion of this is stocked in government bonds, which will not be reinvested after the gilts hit maturity. The remaining £20 billion in corporate bonds will also be reduced through a combination of non-reinvestment and sales.
In Europe, ECB president Christine Lagarde spoke to the press about the Eurozone's record inflation, with an evident change of tune regarding the raising of interest rates. While the ECB has opted not to raise them this month, the wording of Lagarde's speech alluded to a rise – or multiple rises – this year, as opposed to the previous tack of no interest rate changes whatsoever.
For more detailed information you can visit the Bank of England website via the Original Source link below to read their monetary report, as well as watch footage of governor Andrew Bailey explaining the report to the media.