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Britons face rising price pain

By Reuters Staff
February 15, 2011

Fiona Shaikh is Reuters’ Economic Correspondent, based in London. –

BRITAIN/Stubbornly high inflation has proved something of an inconvenience for the Bank of England over the last year, but the unrelenting rise in prices is turning out to be a real headache for ordinary Britons — one which is likely to get worse before it gets any better.

Consumer price inflation — the headline measure targeted by the central bank — accelerated to 4 percent last month, theĀ  highest in more than two years and double the BoE’s target.

A great deal of the rise will have been down to the 2-1/2 percentage point rise in value added tax at the start of this year — a one-off move that will drop out of the statistics next year and mechanically bring headline inflation back down again.

But that will come as little comfort to most people at a time when wages are rising at half the rate of prices and energy bills are rising.

Consumer morale is already in the doldrums and the misery is likely to get worse once the government’s public spending cuts kick-in in earnest.

BoE Governor Mervyn King noted last month that Britons have endured the sharpest drop in living standards since the 1920s depression, and the harsh reality is that most people will need to get used to having less as a consequence of a much-needed economic rebalancing.

The government will have a hard time selling this idea to an electorate that is furious about having to shoulder the cost of the financial crisis, while bankers enjoy lavish bonuses.

The Conservative-led coalition has only just started its 4-year programme of austerity measures and will face its first major test of public opinion in local elections on May 5.

The Conservative Justice Secretary and former finance minister Ken Clarke, fears that Britons are still in denial about the scale of the cuts to come.

“If someone says it’s not as bad as all that, I say [they] just don’t realise the calamitous position we’re in,” he told the Daily Telegraph last weekend.

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