Household budgets threatened by increasing energy prices, cost of living amid pandemic

Britain is in a cost-of-living crisis as households and businesses face increased energy bills and inflation is at the highest rate in almost 30 years at 5.4 percent, experts said.

According to the Office of National Statistics, two-thirds of adults in Britain reported that their cost of living increased in the past month with rising energy prices being a growing factor in the squeeze on household budgets.

Alex de Ruyter, a political economist at Birmingham City University, said: "I would expect inflation to calm down as the threat of COVID-19 to the world economy abates and the disruption to supply chains eases－the threat of new variants of the virus notwithstanding."

But with domestic fuel prices expected to rise by an average of 693 pounds ($940) a year in April, De Ruyter said these rises will hit lower income households the hardest and plunge many into fuel poverty.

The office found that in the financial year from April 2019 to April 2020, the poorest 10 percent of households spent more than half their average weekly expenditure of 298.90 pounds on essentials, such as electricity, gas, food and transportation.

"Businesses have also been hit by energy price rises and the UK is uncompetitive internationally in the kWh (kilowatt-hour) price of electricity, which could adversely affect production decisions in energy intensive sectors, such as the automotive, for example, battery cell production," De Ruyter said.

"Brexit continues to have an impact in the form of new non-tariff barriers to trade and has already cost the UK economy billions, estimated at some 66 billion pounds between 2016 and 2019 alone, or 1,000 pounds per person in the UK," he added.

"It will continue to do so, thus depriving the UK Treasury of money desperately needed to pursue adequate funding of the NHS and social care, or to add material substance to the UK government's 'leveling up' agenda of addressing the sharp regional economic disparities between the southeast and the rest of the country."

He is worried that the cost-of-living squeeze will continue to affect the poorest households, raising concerns about the level of poverty and inequality in the UK.

"While the official unemployment rate is currently hovering at around 4.2 percent, the number of working poor in the UK has increased dramatically in the last decade," De Ruyter said.

He noted that 13 percent of workers are defined as being in poverty, up from 9.7 percent in 1997-98, and those in "precarious" forms of work typified by the "gig economy" now account for about 20 percent of the workforce.

"Since the onset of COVID-19, there has been an increase of 1.3 million workers who are in receipt of government social security payments for the unemployed and the low-paid. It is thus not surprising that we should see record use of food banks in the UK at a time of 'officially' low unemployment. The increase in the cost of living will only impact further on these people," De Ruyter said.

Chris Rowley, a business professor at Kellogg College, University of Oxford, said the challenges to look out for this year include the possible reintroduction of novel coronavirus restrictions, skills and labor shortages and supply chain and logistics issues.

"Some businesses will be more exposed and buffeted by a mix of more of these challenges than will others. Nevertheless, those businesses which have effective leaders for uncertain times－which have the conceptual and human skills and requisite critical thinking－will adapt and prosper," Rowley said.

In separate research by price comparison website Choose, 66 percent of respondents think the support the government is offering on energy bills will not be enough to help them keep the heating on this year.

The UK government has announced a raft of support measures to help with rising household energy costs, such as a one-off repayable 200-pound discount to help with energy bills in October. This loan will be paid back at 40 pounds a year over the next five years from 2023.

Lyndsey Burton, managing director of Choose, said the government's measures are not enough.

"The government's failure to tackle spiraling energy bills in a straightforward way that customers can understand and that won't leave them worried about repaying an unwanted loan is damaging to households across the country. Even if customers manage to pay their energy bills, the knock-on effects to other parts of their life will be as damaging or even more so," Burton said.