Belfast Telegraph

Wednesday 23 July 2014

Lack of growth and soaring bills brings chill winds of hardship

Well, yesterday's announcement of a record rise in inflation is at least good news for those on inflation-linked pensions, even though it means their income is only just keeping pace with inflation and so they are no better off in real terms.

For the rest of us it's a bit like the weather forecast - we don't need the forecasters to tell us how cold it has got in the last few days.

So whether you are a consumer facing increased electricity or gas prices or a larger household shopping bill, or if you are a saver getting returns well below the rate of inflation, the 5.2% increase in the CPI can hardly have come as a surprise.

It seems a long time ago now, but in September 2009, inflation was running so low that we were worried that we could be entering a period of deflation.

The CPI was down to barely 1% and the RPI was actually negative and the prospect of a Japanese-style 'lost decade' loomed. Ironically, this is still the scenario that concerns the Monetary Policy Committee.

The real worry is where the economic growth is going to come from that will deliver the investment and jobs that we so badly need.

The increase in the inflation rate is estimated to add around £1bn to public spending on index-linked benefits and pensions next year.

This reduces further the likelihood of the chancellor resorting to a much-needed 'Plan B'.

With consumers feeling the squeeze, businesses are also facing increased cost pressures and are struggling to find markets and the finance to fund their investment. Growing export markets at the moment seems to be the obvious way forward.

It is going to be a long cold economic winter, so we need to look after the vulnerable and grasp every opportunity to raise the level of economic activity.

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