In October 2021, the maximum limit for gas and electricity bills in the UK, set by the regulator, was £1,277 (€1,527) per year. In April 2022, it rose to £1,971, a jump of 54%. Its future level, which has not yet been officially announced, is expected to be reached in October “about 3,500 pounds”, said Bank of England Governor Andrew Bailey. This equates to nearly tripling the energy bills in one year for UK households.
The energy shock is global, but the latter will be hit hard for lack of tariff protection or an equivalent regime. “Families are facing a price spike not seen in a generation”, observes Jack Leslie, an economist at the Resolution Foundation, a think tank. In June, annual inflation reached 9.4%, the highest level in forty years.
On Thursday, August 4th, the Bank of England drew the consequences. It now forecasts 13% inflation in the fourth quarter and estimates that the country’s economy will enter recession in the final three months of 2022. At the same time, it is trying to contain the rise in prices, at the risk of holding back growth a little more: it raised its key interest rate by half a point to 1.75%. This is the sixth straight rise and the biggest one-shot since 1995.
This bleak picture is a direct consequence of the Russian invasion of Ukraine at the end of February. “Since May [lors de la précédente prévision de la Banque d’Angleterre], Wholesale gas prices have almost doubled due to supply restrictions from Russia”underlines Mr. Bailey.
However, the UK has a peculiarity: 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 the euro zone was 8.6%, similar to the UK. Central Europe or Germany are much more exposed to Russian gas cuts than the British, who get their supplies mostly from the North Sea. In addition, many economists are also forecasting a recession in the eurozone and the United States in the coming months.
However, the UK has one particularity: the poorest are particularly exposed to energy costs. On August 3, the International Monetary Fund released a study measuring the impact of the energy shock on the richest 20% of households and the weakest 20% across Europe. In France, Finland or Sweden, the increase in the cost of living is similar for both groups, around 4%. In the UK it is 7% for the richest and 16% for the most disadvantaged. Only Estonia has such a large gap.
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