Households are already seeing significant rises in the cost of living starting to place serious strain on their budgets, and that’s before soaring energy prices and the National Insurance increase hit.
What is causing the situation, what can we expect over the next few months and what can households do to cope?
– Why is everything more expensive?
Covid-19 has hit global supply chains with a combination of pent-up demand and delays to shipping as factories across the world face lockdowns and worker absences. This has led to prices rising, particularly for raw materials. Food prices have also risen as wages increase, including for HGV drivers due to recent shortages with thousands of drivers leaving the UK to return to their home countries in the EU.
– Will inflation remain high?
Inflation is currently running at 5.1% as of November, according to the Office for National Statistics (ONS). Some are predicting it could peak at well above 6% later this year before falling back. One of the biggest causes of the inflation has been high energy bills, with the wholesale cost of gas spiking globally.
– Will energy bills get higher?
Almost certainly. The Government’s price cap is due for a revision in February, which will be implemented in April. Current predictions are that this will go up 50%, causing some households to choose between heating and eating, it has been warned. Some are calling for a cut in VAT or green levies on bills, while energy bosses are asking for a Government-backed support scheme to cushion the impact.
– Should I shop around for my energy?
Energy companies are recommending you stay put because the price cap is generally the best deal on the market currently. Several suppliers are trying to encourage customers to sign up to long-term fixed-rate deals to offset any future rises, however, it remains to be seen whether they represent good value for money.
From our labour market outlook: inflation is forecast to reach 6% in the spring. Combined with the latest @OBR_UK pay forecasts, this suggests that real earnings will be falling in the first half of next year, before returning to some slow growth if inflation falls back. pic.twitter.com/2SgHohd0Vt
— Resolution Foundation (@resfoundation) December 29, 2021
– What other costs can I expect to increase this year?
The Resolution Foundation recently said each household can expect outgoings to increase by £1,200 this year. Along with rising energy bills, there is also a National Insurance rate rise due in April. On Wednesday, data analysts at Kantar revealed grocery bills rose £15 on average in December and are likely to continue rising this year too.
– What can I do to avoid the pinch?
There’s no way around it – households need to start thinking very carefully about their spending across the board to counter those price rises they cannot control such as energy and fuel.
A quick look over the monthly bank statement should be a good start. Always shop around and use comparison sites for phone, broadband and insurance rather than just rolling over into the next year to keep costs at a minimum.
Consider whether subscriptions are still useful and providing a good deal – many people signed up to new services like Spotify, Netflix or Sky during lockdown and may no longer use them as much.
Think about shopping for own-brand grocery products and set a strict, affordable supermarket budget. Supermarket loyalty schemes can help with making savings.
Cashback sites, and their welcome offers, can be another way of making household budgets stretch further.
The Government-backed MoneyHelper service has budgeting guides at www.moneyhelper.org.uk/en/everyday-money/budgeting