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MPs warn energy bills will push millions into unmanageable debt as UK inflation hits fresh 40-year high and European energy crisis soars

Sunset over St Paul's Cathedral and City of London jack pease

UK’s Members of Parliament said millions of people will be plunged into unmanageable dept this winter unless the government comes up with a solid plan to support those most affected by rising prices.

Driven by rising energy and food prices, the Consumer Price Index (CPI) in the UK rose for the ninth month in a row to a fresh 40-year high of 9.4% in the 12 months to June 2022. This is the highest rate of inflation since 1982 and up from 9.1% in May 2022.1

Rising prices for motor fuels and food made the largest upward contributions to the change in both the CPIH and CPI 12-month inflation rates between May and June 2022.

uk - annual cpih inflation rate june 2012 - june 2022 graph

The situation looks even direr as winter season 2022/23 prospects of inflation are rising up to 12%.

“We still think inflation will rise to 12% in October and that interest rates will be raised from 1.25% to 3%, although it’s finely balanced whether they rise by 25bps or 50bps in August,” said Paul Dales, chief UK economist at Capital Economics.2

“This winter is going to be extremely difficult for family finances and it’s therefore critical that public funds are better targeted to those who need it the most,” said Labour MP Darren Jones.

In a report focusing on how to ease energy costs now, while guarding against future crises, the business and energy select committee suggests, among other things, that the energy price cap should be replaced with a ‘social tariff.’

Germany – the leading economic power in Europe – is also severely affected by sanctions imposed on Russia this year as well as the entire European Union.

As a result, EU energy ministers are in Brussels today in an effort to find an agreement to reduce natural gas demand ahead of winter. However, the proposal made by the European Commission to voluntarily reduce the usage of gas by 15% over the next 7 months across all members doesn’t sound right to many countries. Under the proposal, the voluntary target could become mandatory in an emergency.

Another blow to European industry, economy, and hopes of normal winter came on July 25 when Russia’s Gazprom said it will drastically cut gas supplies again (down to 20%) via Nord Stream 1, starting at 04:00 UTC on July 27. The decision was made due to the ‘technical condition’ of one of the last two operating turbines.

European officials are saying there is no technical reason to limit the gas, but Russia insists on blaming Western sanctions.

While there’s still some time to avert this catastrophe Europe seems destined for, it doesn’t look like decisions are being made in that direction.

References:

1 Consumer price inflation, UK: June 2022 – Office for National Statistics – Accessed July 26, 2022

2 Energy bills will push millions into unmanageable debt, MPs warn – Guardian – July 26, 2022

Featured image: Sunset over St Paul’s Cathedral and City of London. Credit: Jack Pease Photography

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