Tackling rising inflation and slowing growth

Think tank: Institute for Government

Author(s): Gemma Tetlow

May 25, 2022

This report from UK think tank the Institute for Government looks at Government’s big decision on how to share the pain.

The government cannot insulate all households from the economic slowdown needed to bring inflation under control. Instead the big decision facing ministers is how to share the economic pain. With the Office for Budget Responsibility now predicting the biggest drop in living standards for 50 years, this paper says there is a case for the government to consider targeted help for lower-income households. The paper highlights how the 2008 crash and the 1990s recession were caused by a drop in demand, prompting the government to cut taxes and increase spending to boost economic activity. But the current crisis is the result of a shock in supply caused largely by China’s Covid lockdowns hitting global supply chains and the impact of Russia’s invasion of Ukraine on oil, gas supplies and food supplies. The resultant rise in inflation has had a greater impact on lower income families. At the same time the pattern of wage rises and slow growth in benefit rates means lower-income households are experiencing slower income growth, while middle- and higher-income households are also more likely to have built up savings during the pandemic,