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Back to the 1970s? Minister warns over repeat of energy prices shock from 50 years ago – that saw inflation hit 23% and interest rates 17% – as think-tank says households face £1,000 hit amid Ukraine crisis
- Michael Gove has warned of ‘direct comparison’ to energy shock in the 1970s
- That crisis saw inflation hit 23 per cent in the UK and interest rates 17 per cent
- Resolution Foundation says households are already facing a £1,000 hit
A minister has warned that Britain is facing a energy shock similar to the 1970s – when inflation hit 23 per cent and interest rates 17 per cent.
Michael Gove highlighted the ‘direct historical comparison’ between the current Ukraine crisis and the standoff that erupted after the Yom Kippur war in 1973.
That saw prices nearly quadruple when Arab oil-producing nations imposed an embargo in protest at the West’s support for Israel.
In the ensuing chaos UK CPI inflation reached just under 23 per cent in 1975, while by 1979 interest rates had spiralled to 17 per cent.
The grim warning came as Boris Johnson signalled a new dash for gas to help stop Vladimir Putin holding the West to ransom. Gas prices have surged to record levels, prompting fears that household energy bills will double to £4,000.
A think-tank has cautioned that non-pensioner households already face a £1,000 hit this year from inflation and tax rises – heaping pressure on Rishi Sunak to take action in his looming Spring statement.
Michael Gove highlighted a ‘direct historical comparison’ between the current Ukraine crisis and the standoff that erupted after the Yom Kippur war in 1973
In the 1970s CPI inflation hit 23 per cent and Bank of England interest rates 17 per cent
The Resolution Foundation said inflation could hit around 8 per cent this spring – which it said would make ‘falling real household incomes the defining economic feature of 2022’
The squeeze was underlined by a chart tracking changes in disposable income
In an interview on LBC’s Andrew Marr last night, Mr Gove said was asked if the British public : ‘I think we can get through this, but I think there is a direct historical comparison with what happened in the 1970s.
‘After the 1973 Yom Kippur war, oil prices spiked and that had an effect.
‘There were lots of other things going on in the global economy at that time that were difficult.’
He said there are ‘real cost of living challenges’ and there was a need to ‘level with the British people’.
‘Yes, real challenges ahead. But also, we can get through this, and I think that what we mustn’t do is for any reason to imagine that these challenges will overwhelm a country like ours,’ Mr Gove said.
Mr Johnson revealed last night that an ‘energy supply strategy’ will give the green light for more drilling in the North Sea to help stabilise global prices and improve UK ‘self-reliance’.
Ministers are also expected to endorse plans for a new generation of ‘mini-nukes’ to quickly increase nuclear power generation.
Energy prices soared yesterday as Russia’s war on Ukraine appeared stalled and Western leaders pushed for tougher sanctions on Moscow.
Six new oil and gas fields were already set to be approved in the coming months and now another six.
The Government was already poised to approve six new oil and gas fields in the comings months and is now expected to fast-track at least six more.
The decision to drill for more oil and gas will embolden Tory MPs pushing for the Government to ditch its costly ‘net zero’ plan – and comes just days after Nigel Farage called for a referendum on the issue.
Mr Johnson said the UK’s short-term plan may now involve ‘more hydrocarbons’.
He said this ‘doesn’t mean we are in any way abandoning our commitment to reducing carbon dioxide’, but added: ‘We have got to reflect the reality that there is a crunch on at the moment. We need to increase our self-reliance.
‘One of the things we are looking at is the possibility of using more of our own hydrocarbons.’ Ministers are also discussing possible financial help for businesses hit by soaring energy bills.
Energy traders took fright yesterday over US-led efforts to promote a Western boycott of Russian oil and gas to further squeeze the ability of Russia’s economy to fund Putin’s war machine.
Energy prices jumped to new highs, as Russia’s war on Ukraine intensified, and Western leaders pushed for tougher sanctions.
Gas prices surged to record levels, prompting predictions that domestic energy bills could double to £4,000 later this year.
Oil prices also continued to rise, sparking warnings that petrol could push towards £2 a litre – taking the cost of an average tank-full to more than £100. Unleaded hit a record £1.55 a litre yesterday, with industry sources saying it was likely to rise to £1.75 unless the pressure on global prices relented.
Former Foreign Office minister Sir Alan Duncan warned that the West had to be careful not to ‘sanction ourselves’ by forcing energy prices so high that gas suppliers collapse.
The PM acknowledged that families would feel ‘impacts’ on their cost of living as a result of the sanctions imposed on Russia by the West, but added: ‘It’s the right thing to do.’
He went on: ‘It is completely right to move away from dependence on Russian hydrocarbons but we have to do it step by step… and do everything we can to have substitute supplies.’ EU leaders yesterday warned that a full boycott of Russian oil and gas would take time because of Europe’s heavy dependency on supplies from Moscow.
US Secretary of State Anthony Blinken said on Sunday that ‘active discussions’ were underway on a Western boycott of Russian oil and gas.
But Mr Scholz rejected the idea, saying: ‘At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way. It is therefore of essential importance for the provision of public services and the daily lives of our citizens.’
Dutch PM Mark Rutte said ending the EU’s dependence on Russian gas was now essential, but warned that moving too fast could backfire with ‘enormous consequences’ for European households.
Former energy secretary Andrea Leadsom last night said ministers should think again about whether to allow local communities to licence fracking operations in their area.
The Treasury yesterday played down the prospect of the Chancellor unveiling new support for cash-strapped families at a planned mini-Budget later this month.
Boris Johnson (right) has signalled a new dash for gas to help stop Vladimir Putin holding the West to ransom, but Rishi Sunak (left) is coming under pressure to give more support to households in his Autumn statement
The Resolution Foundation think-tank has highlighted the scale of the squeeze on families in the coming months
The think-tank warned that real earnings are turning negative as inflation soars
The wealthiest households are set for the biggest hit in cash terms, according to the think-tank
A source said the Treasury was ‘already providing support worth around £20billion’ to help with the cost of living.
But Mr Sunak is set to come under intense pressure in the coming days to provide more help, particularly for business which is not covered by the price cap on domestic fuel.
The Resolution Foundation said inflation could hit around 8 per cent this spring – which it said would make ‘falling real household incomes the defining economic feature of 2022’.
And even before the conflict in Ukraine, the outlook for living standards this coming financial year was ‘bleak’, with soaring energy bills in April disproportionately affecting families on low and middle incomes.
‘The UK’s post-Covid economic recovery is well under way, but a deep living standards downturn is just getting going,’ the report argued.
The Resolution Foundation’s principal economist Adam Corlett said: ‘Britain has stepped out of a global pandemic, and straight into a cost of living crisis.’
The foundation urged Chancellor Rishi Sunak to address the issue in his upcoming spring statement and increase benefits by 8.1 per cent this year.
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