The United Kingdom is facing an unprecedented inflation surge, with rates reaching a staggering 9% – the highest seen in four decades. The Bank of England has issued a grim warning, expecting inflation to further climb to 10% by the end of this year, simultaneously anticipating an economic slowdown.
This sharp increase in prices has led to a severe cost of living crisis, as wage growth has failed to keep pace with rising expenses. Moreover, households are grappling with the recent imposition of tax hikes, compounding the financial strain on citizens.
The inflationary wave is disproportionately affecting lower-income households, which allocate a larger portion of their budgets to essential needs such as food, housing, and energy costs. Younger age groups, in particular, are more susceptible to this hardship, as they tend to earn less than their older counterparts.
In a comparison of median earnings for different age groups, statistics reveal that individuals aged 22-29 earned an average of £27,092 annually in 2021, significantly lower than the £34,649.16 earned by those aged 30-59.
To comprehend the magnitude of the impact, let us illustrate the potential weekly loss for an average worker. For individuals aged 22-29, their median income in 2021 was £521 per week. Considering an assumed wage increase of 4.5% coupled with the inflation rate, these young workers may face a weekly loss of £24.27 by May 2022, amounting to a staggering £1,261 reduction in their annual earnings this year.
While some may find relief in the recent 6.6% raise in the minimum wage for individuals over 23 and a 9.8% raise for those aged 21 and 22, the overall wage growth since the 2008 financial crisis has been limited. The rise of the gig economy and the prevalence of precarious labor practices like zero-hours contracts have contributed to this subdued growth, leading to uncertainty, poor wages, and, in some instances, a lack of sick pay and workplace pensions.
The COVID-19 pandemic has presented certain job opportunities, particularly in online retail and delivery services. However, these roles often come with precarious conditions, characterized by low wages and job insecurity. Evidence indicates that more than a third of gig economy workers are under 34, leaving them particularly vulnerable to the inflation surge.
Young people currently pursuing higher education are not immune to the impact either. The British government allows universities to increase tuition fees in line with inflation, potentially leading to a significant increase in the cost of learning for many undergraduates.
For recent graduates, higher inflation will translate into increased interest payments on their outstanding student loans. Additionally, those aspiring to become homeowners face rising interest rates, as the Bank of England seeks to combat inflation, driving up mortgage costs.
The plight of “generation rent” has intensified, with rising rents and shrinking disposable income creating additional challenges. According to the Intergenerational Foundation, individuals in their 20s spend nearly half of their income on rent, energy, and transport expenses. Unfortunately, all three of these expenses have been on the rise, with rents increasing by 8.3% on average across the UK in 2021, reaching £969 per month. The cost of energy has experienced a significant surge in recent months, while transportation expenses continue to mount, with petrol prices becoming prohibitively expensive and rail fares constantly on the rise.
The Office for Budget Responsibility (OBR) forecasts a 2.2% decrease in living standards in 2022-23, representing the most significant decline since the 1950s. The report further predicts that it will take until 2025 to return to pre-pandemic living standards.
Moreover, both the Bank of England and the OBR have expressed concerns that inflation will continue its upward trajectory until the end of 2022. Simultaneously, if GDP growth continues to decline, the UK may confront a challenging economic phenomenon known as stagflation, characterized by persistently high prices, sluggish growth, elevated unemployment rates, and limited economic opportunities.
As the nation grapples with these economic challenges, it is evident that young people are disproportionately affected by the current inflationary crisis. Urgent measures and thoughtful policies are required to safeguard their financial well-being and secure a stable economic future.