IFS warns of ‘cost of living crisis’

The Institute for Fiscal Studies has warned of a “cost of living crisis” in light of the UK’s surging inflation rates.

Yesterday the ONS announced that Consumer Price Indes inflation rose to 4.2% in the year to October, much higher than the previous month’s figure of 3.1%, a level not seen since December 2011.

The Bank of England has forecasted inflation to soar further still to 5% in the spring.

The IFS have said that when combined with the effects of recent tax changes, including the new social care levy and freeze in the personal allowance, such price increases have major implications for living standards.

They say the high rate of inflation has been driven by several factors. Demand has increased rapidly following the lifting of Covid-19 restrictions not only in the UK but in other countries as well. At the same time, supply has been constrained by production bottlenecks, staff shortages and, in the UK, new trade barriers following Brexit.

According to the Institute, gas markets are also a stark example of a “perfect storm” pushing price hikes. The increase in gas prices is now reflected in the CPI figures for October display an increase of 28% compared to the previous year.