Brits brace for perfect storm of tax rises, spiraling inflation and

British households are facing the worst cost of living crisis for decades, as soaring inflation, declining real wages and an energy crisis eat into household incomes.

Inflation in the U.K. has soared to levels not seen for decades, with the latest reading hitting an annual 5.4% for December — the highest it’s been since March 1992.

Welfare payments that are linked to inflation will increase by 3.1% in April, the government announced this month, in line with the Consumer Prices Index reading from September 2021. State pensions will also be increased by 3.1%.

The latest official data showed that average earnings, when adjusted to account for inflation, fell by around 1% in November from a year earlier — the first decline in wages since the height of the coronavirus pandemic.

Meanwhile, taxes on earned income are set to increase by 1.25 percentage points from April to help fund health and social care costs. It’s a move which Prime Minister Boris Johnson is reported to be pushing ahead with, despite pressure to U-turn from lawmakers within his own party. 

On Friday, data from the U.K.’s Office for National Statistics revealed that between Jan. 19 and Jan. 30, one in five British adults said they had found it difficult to pay their bills over the past month compared to a year earlier.

More than two-thirds of adults also said their cost of living had increased since November, with the most reported reason for this being the increased cost of food. The ONS interviewed almost 3,500 people.

In the four weeks to Jan. 23, grocery prices in the U.K. rose by 3.8% compared to the same period a year earlier, data from analytics firm Kantar shows. The company’s analysis looked at year-on-year price changes of more than 75,000 products.

“Taken over the course of a 12-month period, this rise in prices could add an extra £180 ($244) to the average household’s annual grocery bill,” Fraser McKevitt, head of retail and consumer insight at Kantar, said via email.

“We’re now likely to see shoppers striving to keep costs down by searching for cheaper products and promotions.”

John Allan, chairman of Tesco — Britain’s biggest grocery chain — told the BBC on Sunday that “the worst is yet to come” in terms of rising food prices.

The Bank of England raised interest rates on Thursday, marking its first consecutive rate hike since 2004, in a bid to curb the U.K.’s surging inflation rate.

BOE Governor Andrew Bailey told CNBC’s Geoff Cutmore that the central bank would likely need to hike rates again. The BOE expects inflation to peak at around 7% in the spring — way above its 2% target.

Bailey faced backlash after urging the public not to ask for large pay raises, which he argued would help prevent the inflation rate from spiraling…