LIZ Truss’s rescue package on energy bills will help to bring down inflation – but interest rates will still need to rise further, experts warn.
The new Prime Minister’s decision to freeze the typical household energy bill at £2,500 a year for two years will address the biggest cause of runaway inflation, analysts at Deutsche Bank said.
Liz Truss’s energy bills rescue package will help to bring down inflation
They believe that inflation will now peak nearer to 10.5 per cent now, rather than the Bank of England’s August prediction of 13 per cent.
Other analysts said a UK downturn would not be as deep as feared and said that the government’s energy support for households, businesses and families should avert a “protracted recession.”
But financial markets are still expecting another significant interest rate rate rise of either 0.5 per cent or even 0.75 per cent to interest rates.
This would take interest rates, which determine mortgage and borrowing costs, up to either 2.25 per cent or 2.5 per cent, the highest level since 2008.
The Bank of England has delayed next Thursday’s interest rate rise announcement following the death of the Queen. It will now take place on 22 September .
The Prime Minister’s spokesman confirmed that the energy price cap guarantee – which could cost £150billion – will still go ahead from 1 October despite the period of mourning following the Queen’s death.
Small businesses have called for further clarity after there was no detail about what price energy costs would be capped at for them.
Kate Nicholls, head of the UK Hospitality said: “Without urgent details and how it will be targeted many hospitality businesses will be forced to take difficult decisions”.
Charities have warned the package still won’t be enough to pull millions out of poverty, and is just a “sticking plaster”.
Michael Clarke, from national poverty charity Turn2us, said “this package isn’t going to pull people out of the financial insecurity this crisis pushed them into.”
He added: “Around 6.5 million people are in fuel poverty and the energy cap is still set to rise by a further £500 under these proposals.
“Far too many people came into this year already unable to afford the basic necessities of energy, food and housing due to extortionate price hikes.”
He said there was a lack of additional targeted support for those on benefits saying it was a “missed opportunity” to ensure people have sufficient money in their pockets.
He added: “We need certainty from our government that all of us will be able to keep warm, fed and with a roof over our heads and not be reliant on one-off acts of generosity.”
The charity said they welcomed any measures brought in by the PM but must be implemented immediately so people can keep the lights on and feed their families.