Cost of living crisis: Fact checking Oliver Dowden’s denial that the UK is in an ‘economic horror story’

Conservative chair Oliver Dowden denied the UK was in an ‘economic horror story’ – so what do the experts think?

Source > iNews

By Molly Blackall

May 6, 2022 5:39 BST

Conservative Party chair Oliver Dowden this morning hit back at the characterisation of the current cost of living crisis as an “economic horror story”.

During an interview on BBC Radio 4’s Today Programme, Mr Dowden admitted that the UK was facing an “unprecedented global inflation challenge” but denied the presenter’s claim it was a “horror story”.

So, who is right? i looked at the latest information on the cost of living crisis and spoke to economists about how serious the UK’s economic challenges are.

What did Mr Dowden say?

Mr Dowden, former cabinet minister and Conservative MP for Hertsmere, was grilled on the current cost of living crisis by the BBC’s Nick Robinson on Friday morning.

“I have fronted up before and I’m very happy to front up again the scale of these challenges we face, and it’s something – as you rightly say – we haven’t seen for for 40 odd years at least,” he said.

“This combination of both, as we recover from Covid, the pressure on supply chains, the situation in China with their continuing lockdown is driving inflation, and the increase in oil and gas prices as a result of the crisis in Ukraine is driving inflation.

“You wouldn’t expect me as a minister to start making predictions but I’ve read and fully accept the Bank of England’s analysis. So we are facing an unprecedented global inflationary challenge and that does demand unprecedented action from the Government.”

However, he added: “I think we need to have a bit of sense of proportion about this. I don’t accept your characterisation of this being an economic horror story.”

He insisted that the Government’s actions had led to unemployment rates going back to pre-Covid levels and “record growth”.

What is the Bank of England’s analysis?

This week, the Bank of England’s Monetary Policy Committee raised interest rates from 0.75 per cent to 1 per cent. According to the Resolution Foundation, this is a level not seen since the financial crisis.

It also predicted that inflation would reach 10 per cent in the final the final quarter of the year (October to December) – the highest level since the 1980s.

The body also predicted that real post-tax labour income will fall by around 3.25 per cent this year, which the Resolution Foundation says is equivalent to an income drop of around £1,200 for the average household.

The Bank also forecast unemployment to continue to rise to at least 2025, and predicted that energy price cap would rise to £2,750 this October.

How is the cost of living crisis hitting Britons?

Petrol prices have hit record highs this year, while energy bills have soared. A sharp rise in the energy price cap from £1,277 to £1,971 was announced in March.

Britons have also noticed their food shop increasing in cost.

Food inflation rose to 3.5 per cent in April, up from 3.3 per cent in March and 2.7 per cent in February. However, fresh food inflation slowed slightly from 3.5 per cent to 3.4 per cent, according to the BRC-NielsenIQ Shop Price Index.

And wages aren’t rising to match.

Wage growth in the last quarter of 2021 has failed to keep pace with rampant inflation, leaving weekly pay 1.8 per cent lower in real terms at the end of last year compared to the same time a year before.

So what do the experts think?

James Smith, Research Director of the Resolution Foundation, said there was “no doubt that Britain is facing an acute cost of living crisis.”

“The return of double-digit inflation for the first time in 40 years will put severe pressure on family budgets, with the average hit to pay packets this year now expected to be around £1,200,” he told i.

“It’s encouraging at least that we are going through this period with a labour market in rude health – with unemployment currently close to record lows, and job vacancies at a record high.

“But with the worst of the crisis still ahead of us, it’s clear the Government must do more to support low-and-middle-income households who are at the sharp end of this huge living standards squeeze.”

Professor Stephen Millard, deputy director of the National Institute of Economic and Social research, said that while it would be a “tough year”, the situation was not as dire as during the 2008 crisis.

“A technical recession is when the economy contracts in two quarters consecutively, and I can see that happening, but it will not be a deep or major recession. Growth will pick up again,” he told i.

However, Professor Millard said his primary concern was the impact on the “poorer households in society.”

“My biggest worry is really about the distributional side of things,” he said. “The economy as a whole is robust enough to survive, though it will be tough, but we’re really worried about the impact on extreme poverty and destitution.”

Emma Revie, CEO of poverty charity The Trussell Trust, said she was hearing of people skipping meals to feed their children and asking for food items that don’t need heating because they can’t afford to use the oven.

“This is the stark reality for millions of families on the very lowest incomes, who are bearing the brunt of the cost-of-living crisis and now struggling to survive,” she said.

“We’ve already seen accelerating need at food banks across our network following the £20-a-week cut to Universal Credit – but we know this situation which will get far worse as the cost-of-living crisis continues to bite. For most people at risk from financial hardship – who cannot work or work longer hours due to disability, caring responsibilities or mental health issues – we are concerned that there is very little protection ahead.”

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