The prime minister will also have to grapple with an economy at risk of recession.


As Boris Johnson hangs on as Britain’s prime minister, the hurdles he faces include a cost-of-living crisis. This year is set to be painful for millions of households as food prices and energy bills soar higher. Inflation, which is already accelerating at its fastest pace in four decades, is forecast to rise into the double digits, and wage growth is not keeping up.

The Bank of England has predicted a sharp decline in disposable household income adjusted for inflation, saying it will be one of the worst years since the mid-1960s. Already there are signs of people tightening their belts. More than a third of people in Britain are cutting back on buying clothes, eating out or ordering takeout food to save money, according to a YouGov survey from late May. In May, credit and debit card spending declined.

The pressures are mounting for businesses, which are worrying about their own spiraling expenses for energy and commodities like metals and cooking oil. Half of small and medium-sized businesses in Britain are concerned that rising costs will negatively affect consumer spending, according to a recent survey by Barclays.

The government will try to insulate people from some of these rising costs later in the year by giving every household 400 pounds ($500) off their energy bills and grants worth more than £1,000 to millions of people on low incomes.

But activists still warn of hardship, pointing out that food bank usage had already grown during the pandemic. People on limited income, who spend a larger portion of their money on essentials like heat, electricity, rent and food, are facing particularly harsh inflation. Prices for basic food items are rising quickly. Pasta increased in price 50 percent in April from a year earlier, and bread prices rose 16 percent.

British households are also going to have to navigate rising interest rates, which will affect their mortgages, savings and other loans. As inflation rises and spreads to more goods and services, the Bank of England is trying to address the issue by quickly raising interest rates. At the central bank’s last meeting, policymakers raised the benchmark interest rate to 1 percent, the highest since 2009, and more increases are on the horizon.

But the bank has warned that it is on a “narrow path” as it tries to tackle inflation without cooling the economy too much and worsening the risk of recession. The squeeze on household budgets is expected to slow down consumer spending and arrest economic growth. The bank forecasts that the economy will contract almost 1 percent in the fourth quarter of this year, when the next round of higher energy bills are in force, and then contract across the course of 2023.



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