At times it feels like it doesn’t end. From one pandemic to another crisis, the combination of ever increasing energy bills combined with rising food prices is sending inflation to the highest levels seen in over 30 years. On the other hand, the cost of borrowing is increasing at a higher rate than the wages growth, clearly leading to a cash crisis.


Its been 30 years since inflation was at its current levels. With fewer January sales and discounts, prices were hiked by 5.5% by the start of February 2022 as retailers reduce discounts offered on clothing and footwear.

When compared to wages growth, inflation is soring much higher, along with the cost of fuel and food, households are beginning to feel the squeeze. According to Office for National Statistics (ONS), wage growth in the UK struggled to keep up with increasing inflation between October 2021 and December 2021.

Average weekly take home pay across the UK fell by 1.2% though the month of December 2021, showing how wages aren’t keeping up with the rise in the cost of living. Inflation is forecasted to rise above 7% this year, and the government is expected to offer support in the highly anticipated Spring Budget

Surging Business Costs

According to a survey by the British Chambers of Commerce, (BCC), around three quarters of business are looking to increase prices to battle the rising costs of wages, energy and materials. The survey of more than 1,000 firms shows businesses are under pressure from various costs, resulting in increases in prices, which consequently has an knock-on effect on households.

Rising energy prices were the biggest factor with 62% of the firms blaming the increase in energy costs for their price increases. This rose to 73% for manufacturers. Also, 63% stated increased wages costs were driving their price increases.

The BCC called on the Chancellor, Mr Rishi Sunak, to address these challenges using their five point plan. These include a temporary energy price cap for small businesses and an extension of the financial support offered to households to small businesses.

The base rate and cost of borrowing

At the beginning of February, the Bank of England increased the base interest rate from 0.25% to 0.5% as a response to rising inflation. This was further raised again in March 2021 to 0.75%

The base rate is used by central banks when lending to one another and by lenders when borrowing. It affects what borrowers repay and savers earn.

Lenders may raise standard variable rate (SRV) or “discount” mortgages, and those on a tracker mortgage, will see monthly mortgage repayments increase as a result.

It is expected that the Bank of England will raise interest rates further this year, therefore it may be advantageous to fix a mortgage rate before the increases take effect.

Spiralling energy costs

Recently Ofgem have decided to increase the energy price cap by the steepest level ever which takes effect from April 2022. This is estimated to increase an average household energy bill by £693/year which will affect almost 22 million households. The increase is due to Ofgem increasing the price cap on standard and default tariffs by 54%  of which over 60% of households are on standard tariffs.

Unfortunately there is little households can do to avoid the price increases and no cheap deals are available in the market currently. However the Government has announced over £9 billion of state backed loans will be made available in England, Scotland and Wales with each household receiving £350 to help with their energy bills.

Pressure on pensions

Those claiming state pensions will find meeting the cost of living a challenge as the government has dropped its triple lock promise, even though inflation continues to rise.

The triple lock promise meant that pensions rose every year by the highest of inflation, earnings growth or 2.5%. However, earnings growth, running at 8% was dropped, creating a double lock promise. The state pension will now increase by 3.1% in April 2022 which was the inflation for September 2021

However, at the current date, inflation is much higher, fuelled by increased energy and food bills which pushed the cost of living up to 5.5% in January 2022.


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