Written by Amy Beecham
Everything you need to know about the record-breaking levels of inflation the UK is experiencing right now, and how they impact you.
Just when we thought the cost of living crisis couldn’t squeeze us any harder, yesterday it was announced that prices are continuing to rise at their fastest rate for more than 40 years, with UK inflation hitting 9.4% in the year to June.
As businesses and consumers are experiencing huge financial pressure across bills, household items and food, and with the Bank of England warning inflation will top 11% later this year, it’s certainly a worrying time.
But what does inflation actually mean? And how are the rises impacting us day to day? Stylist breaks it down.
What is inflation?
According to the Bank of England, inflation is the term used to describe rising prices. How quickly prices go up is known as the rate of inflation.
Inflation is calculated by the Office for National Statistics, which records the cost of over 700 things that people regularly buy, such as loaves of bread and bus tickets, as well as larger items like cars or holidays.
To calculate the rate of inflation, they compare the cost of the basket with what it was a year ago, and the change in the price over the year dictates the rate of inflation.
Over the past 12 months, energy bills have risen rapidly because of high oil and gas prices, as has the price of petrol, diesel and food as the war in Ukraine squeezes production and costs.
Money Saving Expert Martin Lewis recently warned of “financial cataclysm” as he predicted that further gas and electricity bill price rises this autumn would require the provision of “warm spaces in public buildings” such as libraries, where people who can no longer afford to heat their homes can find shelter.
His recent open video letter to the Conservative leadership candidates painted an increasingly bleak picture.
Despite the government announcing a financial package of cost of living measures, the £400 grant to help with energy bills has already been swallowed up by predicted increases in the price cap, Lewis explained.
A recent update from analysts at Cornwall Insight predicts that in October the energy price cap will rise to £3,244 a year – a 65% increase that will have devastating consequences for millions across the UK.
How does inflation impact our day to day lives?
Alongside increasing the cost of goods, price inflation often outstrips growth in wages, leading to below-inflation pay rises.
This week, millions of essential public sector workers including police, doctors and teachers received below-inflation pay rises of a maximum 9.3% for low earners, but many received less than half of that.
Living standards think tank The Resolution Foundation has also stressed that the poorest households are hit hardest, as the shortfall in people’s incomes to pay for vital essentials like food leaves them more vulnerable to inflation.
Research from national poverty charity Turn2Us reveals almost half its users (47%) report being left with nothing to live on each week after paying for housing, council tax and utility bills.
The problem is especially severe for those with a disability or chronic illness, who are reliant on benefits that are not keeping pace with the rising cost of living, amid widespread cuts and a welfare system struggling to properly meet demand.
“With inflation reaching 9.4% and wiping out pay increases, the cost of living crisis is only worsening and no time can be lost in preparing the country for profoundly difficult months to come,” explains Rebecca McDonald, chief economist at the Joseph Rowntree Foundation.
“Just last month we found that about 7 million households have already missed out on essentials like heating, toiletries or showers because they couldn’t afford them. Now the cost of essentials such as food is rising again and more people than ever are enduring a year of financial fear.”
A spokesperson for Turn2Us said that the news would “no doubt cause huge concern and worry for people across the UK who are already struggling to afford the essentials”.
“Many of us are already cutting back on energy usage and even turning to food banks to get by. The reality is, this increase is going to plunge thousands more people into financial insecurity and those on the lowest incomes will be unable to afford the basics needed to live.”
Both the Joseph Rowntree Foundation and Turn2Us agree that intervention is urgently needed to catch people before they fall into crisis in the months to come, and that the government must ensure that, as a minimum, benefit levels are increased to meet the true cost of living so that money is not taken away from people at a time when they need it most.
What is being done about it?
Despite the devastating numbers, a minister for the treasury said the government is confident it will see a “marked improvement” in 2023.
Responding to the figures, chancellor Nadhim Zahawi said he recognised there were risks to public finances, including from soaring inflation, adding: “That’s why the government has taken action to strengthen the public finances, and in their latest forecast the Office for Budget Responsibility (OBR) assessed that we are on track to get debt down.”
However, campaign groups and opposition politicians say this isn’t enough, with Labour calling for urgent action from the government to remove VAT from energy bills and announce further support packages.
“A simple thing the government can do now is to stop deducting debt repayments from benefits at unaffordable rates, which leaves too little to cover the essentials at the best of times,” suggests the Joseph Rowntree Foundation.
“All those putting themselves forward to lead the UK should pledge to increase basic Universal Credit entitlements to ensure that our social security system always, at a minimum, enables people to afford the essentials when they fall on hard times.”
If you are concerned about money or are struggling with debt, charities like StepChange and Turn2Us provide free and impartial financial advice.
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