Tag: Health Foundation

Inflation continues to loom large as 2023 gets properly underway

This week always feels like a bit of a transition every year – it starts to feel a bit late to say “Happy New Year”, and the start of the week is dubbed “Blue Monday” as people realise that those well-meaning new year resolutions have already been broken (writes Fraser of Allander Director MAIRI SPOWAGE).

One of mine was to think hard to find the optimistic news in what can sometimes feel like the unrelentingly negative economic situation we are in, which is likely to remain tricky throughout the year. I was tested hard this week as new inflation data was released on Wednesday.

Inflation falls to 10.5% – but let’s not get too excited

The ONS released the official inflation data for December, which showed CPI inflation had fallen from 10.7% in November to 10.5% in December.

The main items driving the fall in inflation are petrol and diesel prices, and prices for clothing in footwear. Prices at the pump have been falling since their peak in July, and in December they were back to roughly the levels they were at before the Russian invasion of Ukraine. Clothing and footwear has fallen really due to a lack of discounting in December 2021, so when compared to December 2022 it appears that prices have fallen.

Obviously, energy prices are still contributing hugely to this very high inflation rate (which, let’s not forget represents a 40 year high of inflation apart from the preceding three months in 2022). That increase is currently stable in the figures due to the UK Government’s Energy Price Guarantee – but this cap on unit prices is only in place until end March, when it increases to £3,000 for a household with typical use. The ONS estimate that this will add 1 percentage point to inflation when it comes into effect.

Worryingly for those on the lowest incomes, food prices continue to increase faster than the headline rate. The inflation rate for food and non-alcoholic beverages increased to 16.9% in December from 16.5% in November.

We were asked two main questions when the data came out on Wednesday.

The first was, of course – what is the outlook for inflation for the rest of 2023? The expectation by the OBR is that inflation is likely to fall to under 4% by the end of the year. But remember, this does not mean that prices will start to fall at this point – just that they will grow less quickly.

This is somewhat simply due to the definition of inflation – it compares prices now to prices a year earlier, so as we move into October, we will be comparing to the much higher energy costs from October 2022. It was therefore inevitable that growth was likely to slow down – a point to bear in mind when some try to take credit for the fall in inflation.

The second is whether we are likely to see further increases in the Bank of England’s base rate at their next meeting on 2nd February – especially given that inflation has come down a bit. Unfortunately for mortgage payers, it is still very likely that we will see further increases in the base rate.

Why? Because inflation is not just been driven by food and energy costs. CPI excluding energy, food, alcohol and tobacco (often referred to as core CPI) is at 6.3%, and has been around this level since July 2022. This is being generated by domestic factors, including the tight labour market, which means the Bank is likely to take the view that they need to continue to cool demand in the economy.

Scottish unemployment remains at 3.3%

We also got updated figures on the labour market on Tuesday, covering the three months to November. Scottish unemployment remained at 3.3%, slightly below the UK rate of 3.7%. Employment remains high, at 76.1%, with inactivity at 21.3%.

Changes in inactivity over the period of the pandemic have been a focus of much analysis – because although the level is now similar to before the pandemic, the underlying reasons why people are inactive seem to have changed – with an increasing number saying that they are not in work or seeking work because of ill health or disability.

See a great Twitter thread on this by our colleague Professor Stuart Mcintyre – as part of his monthly analysis of the labour market.

Alongside the headline labour market numbers, there is also information ONS publishes monthly on earnings and vacancies.

The vacancy level alongside the labour market data helps us understand how tight the labour market continues to be. The total number of vacancies has been falling in recent months, since the record highs in Q2 2022. However, the number of vacancies remains historically very high, with 1.0 unemployed people for each vacancy – a rate which remains indicative of a tight labour market.

Earnings (ex bonuses) grew by 6.4% in the year to the three-month period Sept-Nov. Given the inflation rate over this period, this means that earnings are continuing to fall in real terms. In the face of continuing public sector pay disputes across the UK, the split between the public and private sectors is particularly interesting. Private sector pay grew by 7.2% compared to 3.3% for the public sector.

Health Foundation publishes important research into health and health inequalities in Scotland

This week the Health Foundation published a report to provide a picture of health and health inequalities in Scotland, in order to inform future efforts to improve both.

An independent review underpins their report, and we were delighted to work with the Health Foundation on this programme of work, as one of four independent organisations to carry out supporting research. See our research here.

And finally, I don’t care if it’s too late – Happy New Year everyone! But that is the last time I’ll say it this year.

Three-in-ten new Universal Credit claimants have seen their debts grow during the crisis

Over three-in-ten people who have started claiming Universal Credit (UC) during the pandemic have either acquired new debts, or seen their existing debts grow, as the crisis enters its eleventh month, according to new research published by the Resolution Foundation.

The debts that divide us – which includes analysis of a detailed online YouGov survey, supported by the Health Foundation – explores how people who have newly claimed UC during the pandemic have coped financially, as well as their prospects for the coming months.

The Foundation notes that of the almost six million people who are currently claiming UC, around three-in-five made a new claim in 2020, including many of the 1.4 million people who made a new claim at the start of the crisis in April and May of last year.

The research finds that families newly claiming UC have taken a major income hit, even with the vital £20 a week uplift to UC. Almost half (45 per cent) reported seeing their income fall by at least a quarter, while around one-in-three (34 per cent) reported seeing their income fall by at least 40 per cent.

And with the pandemic-induced economic crisis having lasted almost a year, the research shows that the big income losses faced by people moving onto UC are taking their toll on their ability to cope financially.

The research finds that over three-in-ten (31 per cent) new UC families have either acquired new debts or seen their existing debts grow, while around one-in-five (21 per cent) have fallen behind on paying essential (non-housing) bills.

Looking ahead to the next three months, a period in which UC is set to be cut by £20 a week (from 5 April 2021), three-in-five (61 per cent) UC families say they will struggle to keep up or will fall behind on bills, around twice the proportion of families across the economy as a whole (31 per cent).

The Foundation says that the uplift to UC has been essential for protecting family incomes during a pandemic that is lasting far longer than anyone expected when the policy was announced back in March 2020. The uplift is likely to prove just as vital in the coming months too, as more people claim UC off the back of rising unemployment.

It adds that with millions of households claiming UC experiencing real financial hardship, cutting their support in just two months’ time would be a grave error – and extinguish any hopes of a living standards recovery this year.

Karl Handscomb, Senior Economist at the Resolution Foundation, said: “Over three million people have started claiming Universal Credit since the pandemic began, including 1.4 million people who moved onto the benefit right at the start of the crisis.

“As the pandemic reaches its eleventh month – a depressing duration few expected last March – the income shock from with moving onto Universal Credit has evolved into mounting debts and arrears on essential bills.

“The Chancellor was right to raise Universal Credit to support families through tough economic times. And with tough times set to continue as unemployment rises through 2021, this vital boost to family incomes must be maintained.

“Cutting the incomes of six million families in just two months’ time, when public health restrictions are still likely to be widespread, makes no sense politically, economically, or in terms of raising people’s living standards.”