Effects of the Rising Inflation on the Cost of Living in the UK
The pandemic has led to a disruption in the global economy. And as the world is trying to heal from its high impact, inflation has hit Britain at its fastest pace this year compared to the last 40 years, deepening the cost of living crisis. According to the Consumer Price Index, Britain's cost of living has seen a rise of 9.4% for the 11th month in a row. This intense rise has led the Bank of England to increase its interest rates in an attempt to bring the high inflation under control.
What Does High Inflation Mean?
While predicting the changing price of one product is simple, human needs extend beyond one commodity. People need a diversified set of products and other services, including food, electricity, fuel, transportation, labour, entertainment and healthcare, for a comfortable living. The inflation rate measures the overall impact of price change on these diversified products and services.
The cost of living also depends on the price of these commodities. In fact, the inflation rate is used as an indicator to measure the cost of living. When the cost of the basic goods rises, every household will get fewer goods and services for every pound they pay compared to what they paid previously. This means that the pound's value has depreciated, and when this happens, we can say that a country is going through high inflation.
In simpler words, everything that used to come in about £20 will now require you to spend more pounds for purchasing.
The Condition of Rising Inflation Around the World
After 2021, inflation occurred in several countries. Blame the pandemic for all of the supply shortages due to economic recession. And post that, the demand for products increased as the world prepared to resume from a significant economic recession. Even the situation in Ukraine has a lot to do with the rising inflation and the growth of demand and supply chain.
According to Eurostat, the UK's annual inflation rate was 9.9% higher when compared to other economies like France, with 6.6% and Germany, with 8.8%.
Why is the Inflation Rate High in the UK?
Due to the increased prices of energy, the inflation rate is at a high in the UK. One of the main reasons for this in the UK is Russia's invasion of Ukraine, leading to increased gas and food prices. This creates an entire cycle of increased price rates. Businesses are charging high for services and goods due to the increased costs they have to bear. There are more job vacancies than there are people to fill the posts. This automatically means employers have to offer high wages to attract candidates.
Moreover, due to the government caps on energy bills, we can expect a further rise in inflation in the UK.
What Does Inflation Impact?
Inflation impacts every commodity and service. This happens because you have to start paying more for the same quantity of products. In August 2020, even the food bank charities reported increased demand. 19% of the food banks had to reduce their parcel size due to a spike in demand and a dip in supply.
High inflation also increases the cost of living since your overall living cost rises compared to your income. According to the Office for National Statistics, 87% of UK adults have already seen an increase in their living costs in August-September 2022. Moreover, low-income people are the most affected since they have to spend a larger portion of their income on food and energy.
In short, inflation impacts everyone and everything.
Some Notable Changes in Prices After Inflation
This month's inflation has resulted in increased prices across many sectors, among which the largest movement in the Annual Consumer Prices Index was noted in food and non-alcoholic beverages. The rise was about three times the size of the next annual contribution.
According to the Consumer Price Inflation, UK, in July 2022, here is the inflation rise in every industry:
- Transport: 15.1%
- Food and Non-alcoholic Beverages: 13.2%
- Housing and Household Services: 9.1%
- Restaurants and Hotels: 9.0%
- Miscellaneous Goods and Services: 4.0%
- Recreation and Cultural Activities: 0.4%
Apart from the above industries, the only one that saw a dip in prices by 1.5% is the clothing and footwear industry.
What's the Situation of Consumer Credit?
Due to the rising inflation in the UK, demand for customer credit will increase by approximately 7.9% this year and 5.5% by 2023.
The mortgage lending forecast has risen 3.8% this year and will rise by 3.3% in 2023. The net bank lending to the businesses of the UK is expected to increase by 2.8% in 2022 and 3.3% in 2023, as the markets are slowly returning to the pre-pandemic economic conditions.
As the cost of living increases, it is getting difficult for people to suffice their needs. The pressure of a high living cost has buried the citizens of the UK under the route to take debt. For that reason, there's been an increased demand for loans and credit lines, as opposed to the 12% pandemic-driven fall of this industry during 2020-21.
When Will the Inflation Fall?
According to the Bank of England, inflation is expected to fall next year. Their target for inflation is 2%, and they expect to reach there in around two years. Let's hope that this fall happens and with that a relief is presented to the people of the UK.
Author Bio: Tanya Singh works as a Content Marketer at LoanTube. She writes about topics related to personal finance and loans helping her readers in making smart decisions when they need to borrow. Yoga brings her inner peace and strength, and traveling brings her joy (besides her work of course).