Extract A: Inflation and interest rates in the UK, Q1 2020 to Q2 2022

Extract B: The cost of living squeeze

The surge in global energy prices and supply chain bottlenecks has led to a dramatic rise in the cost of living. Households are facing unprecedented squeezes on their budgets as essential bills soar. In response, the central bank has started raising interest rates to curb demand-pull pressures and prevent high inflation expectations from becoming entrenched. Economists remain divided on whether these rate hikes will lead to a technical recession.

Extract C: Real incomes are falling

While nominal wages have increased due to a tight labour market, high levels of CPI inflation mean that real wages are falling at their fastest rate in decades. Consequently, real household consumption is projected to shrink, dragging down aggregate demand. Furthermore, weak consumer confidence suggests that households are prioritizing precautionary savings over discretionary spending.

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