British households shocked by rising energy bills
In October 2021, the maximum limit of bills of exchange for gas and electricity in the UK, set by the regulatory authority, was 1,277 pounds sterling (1,527 euros) per year. In April 2022, it rose to 1971 pounds, that is, by 54%. In October, its future level, which has not yet been officially announced, should be «about 3,500 pounds», according to the governor of the Bank of England, Andrew Bailey. This means almost tripling energy bills in one year for homes in the UK.
The energy shock is global in nature, but households have suffered greatly due to the lack of a tariff shield or a similar system. «Families are facing price increases that haven’t been seen in any generation», – says Jack Leslie, an economist at the Resolution Foundation research center. In June, inflation reached 9.4% for the year, the highest level in forty years.
On Thursday, August 4, the Bank of England outlined the consequences. He now forecasts inflation at 13% in the fourth quarter and estimates that the country’s economy will enter recession in the last three months of 2022. At the same time, he is trying to stop the price increase, risking holding back a little more growth: she raised the key interest rate by half a point, to 1.75%. This is the sixth consecutive increase and the largest one-time increase since 1995.
This gloomy picture is a direct consequence of Russia’s invasion of Ukraine at the end of February. «Since May [during the Bank of England’s previous forecast], wholesale gas prices have almost doubled due to supply restrictions from Russia», – Bailey said.
The UK’s predicament is far from unique. In June, inflation in the US was 9.1%, and in the euro area — 8.6%, which is close to the level of the UK. Central Europe or Germany are much more exposed to the reduction of Russian gas than the British, who mainly receive their supplies from the North Sea. Moreover, many economists also predict a recession in the eurozone and the US in the coming months.
Nevertheless, there is one peculiarity in the United Kingdom: the poorest segments of the population are particularly exposed to electricity costs. On August 3, the International Monetary Fund published a study measuring the impact of the energy shock on 20% of the richest households and 20% of the most vulnerable households across Europe. In France, Finland or Sweden, the increase in the cost of living is the same for both groups and is about 4%. In the United Kingdom, it is 7% for the richest and 16% for the most disadvantaged. Only in Estonia is there such a big gap.