Cost of living: people will end up “on the street”, according to Hollinrake
In July, the UK’s annual inflation rate hit double digits for the first time in 40 years, hitting 10.1%. At the same time, real wages fell 3%, their biggest hit since records began. According to research by RIFT tax refundsthe average person in the UK would need a pay rise of £3,500 to keep pace with current inflation, and a raise of almost £5,000 at the forecast inflation peak of 13.3 % in October.
The Consumer price index (CPI) – the official measure of inflation that tracks the price of a broad basket of goods and services – rose to 10.1% in the year to July 2022, its highest level since 1982, according to Office of National Statistics (ONS).
Up 9.4% in June, the main driver of this month’s increase was food and non-alcoholic beverages.
Annual food inflation reached 12.7% in July, its highest level since August 2008, mainly due to the upward contribution of cereals, milk, cheese and eggs.
Although energy costs are expected to drive inflation to new highs when the price cap is raised in October, fuel prices began to decline during the month.
Wages must increase significantly to avoid a dramatic fall in living standards
According Labor Force Survey estimates released last week, in the April-June quarter, regular pay increased 4.7% year-on-year.
However, with that figure dwarfed by inflation, real wages – wages adjusted for inflation – fell by a record 3%.
RIFT Tax Refunds CEO Bradley Post said, “Many households are struggling to combat the rising cost of living due to the current rate of inflation, and many are trying to do so with a level of stagnant income that has not experienced the same. growth level.
“In fact, to keep up with this pace, the average person would need to see a huge increase in their annual income to the tune of £3,500.
“However, the sad reality is that many simply won’t and it will put them at a serious disadvantage when it comes to managing their household finances.”
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Bank of England Governor Andrew Bailey announced forecast inflation of 13.3% in October
According Salary Specialistthe average annual gross salary in the UK is £37,235.
However, with the cost of living soaring at such a rapid rate, the standard of living is rapidly falling.
According to new research from RIFT Tax Refunds, the average person would need their paycheck to rise by at least £3,500 to match the rate of inflation last month.
Although this would add £1,164 to their tax bill each year, it would also leave them with an extra £2,336 to buy the goods and services they are used to.
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The energy price cap will exceed £3,500 in October and is expected to exceed £5,000 next year
The average beautician would need a £1,461 increase in annual gross earnings to keep up with inflation, paying £486 more in tax dues but taking home an additional £975 a year.
Construction workers would need a pay rise of £3,074, increasing their annual net income by £2,053 while increasing their tax bill by £1,022 a year.
Nurses are expected to earn an extra £3,138 a year, boosting their net income by £2,095 a year while seeing them pay an extra £1,043 a year in taxes.
Teachers also need to earn £3,331 more than the current average salary to combat the impact of inflation, seeing them earn an extra £2,223 after tax and pay £1,107 more in tax contributions.
Based on July’s 10.1% inflation rate, the average pay rise needed would be closer to £3,750.
In early August, in a bid to rein in rising prices, the Bank of England (BoE) raised the interest rate by 0.5% to 1.75%, its largest one-time increase in 27 years.
At the same time, BoE Governor Andrew Bailey announced that he expects inflation to hit 13.3% in the fall, more than six times his target of 2%.
Using the same methodology as above, this rate of inflation means that the average worker would need a pay rise of almost £5,000 to maintain their standard of living.
This would provide around £3,300 extra for expenses after deducting £1,650 for additional taxes.
However, it is very unlikely that such a salary increase will materialize.
On the one hand, unionized workers in a variety of sectors, from transportation to justice, have been striking for better wages in recent months, with little to no result in a settlement even close to inflation.
On the other hand, economists warn of dreaded wage-price spirals, in which employers who continually raise workers’ wages are forced to raise consumer prices to protect their margins.
The only possible solution is for inflation to come down, and for that, it looks like the country has to endure a recession.