Inflation ‘will hit poorest hardest’

The poorest people in the UK face a rise of almost 10 per cent in living costs, compared with an average of 8.6 per cent, forecasts show.

Inflation will hit the fifth of households on the lowest incomes because they spend more of their budget on utilities, according to the EY Item Club, the economic forecasting group. Living costs for these households are set to rise by 9.6 per cent, compared with 8.6 per cent for the richest fifth of households, when the energy price cap rises by 54 per cent.

The rates of inflation felt by the poorest and richest are expected to narrow by March next year, but poorer people are more likely to spend a greater proportion of their income on essentials and therefore are less able to substitute goods and services when prices rise.

The Office for National Statistics restarted its publication on the impact of inflation based on household income at the start of the year following a campaign by the food writer Jack Monroe to improve reporting on the effect of rising prices on the poorest households.

The EY Item Club downgraded its forecasts for growth and revised up its inflation expectations in its latest set of projections, but remains more optimistic than the Office for Budget Responsibility, the official forecaster. EY Item Club economists say in a report today that inflation will peak next month at 8.5 per cent, up from its February forecast of 7.2 per cent. The predicted peak is earlier and at a lower level than the OBR’s forecast of an 8.7 per cent peak in October when another big rise in energy bills is expected to push up household bills.

Growth will slow to 4.2 per cent this year, down from the 4.9 per cent previously expected, EY Item Club forecasters said. The OBR revised down its forecasts for growth this year to 3.8 per cent, from 6 per cent, over concerns that high inflation would erode the value of earnings and suppress demand for goods and services.