Citizens Advice have advised that “the warning lights could not be flashing brighter” for the government to issue more support for households than they are now and debt charities are urging those finding it difficult to pay bills to seek help earlier rather than later in the year.
“There are desperate stories behind these figures. People washing in their kitchen sinks because they can’t afford a hot shower; parents skipping meals to feed their kids; disabled people who can’t afford to use vital equipment because of soaring energy bills,” Dame Clare Moriarty, chief executive of Citizens Advice told the BBC.
How does raising interest rates help to tackle inflation?
The Bank of England has a target to keep inflation at 2%, but the current rate is, as mentioned, three times above that. The traditional response to rising inflation is to put up interest rates – we know, ideal, right? The thinking behind it is that it makes borrowing more expensive and so people have less money to spend and therefore buy fewer things, reducing the demand for goods and in turn, actually slowing price rises and reversing the high inflation rates.
However, since everyone has less money including businesses, who cannot afford to borrow, they then make job cuts. No one is a winner here.
In June 2023, the Bank increased interest rates for the 14th time in a row, taking the main rate to 5.25%. Not good news for anyone, especially homeowners on tracker mortgages who have seen their monthly repayments almost double.
What does high inflation rates mean for your finances?
Understandably, people are concerned about what this means for their finances. I mean, isn’t budgeting tough enough as it is without having to account for growing rates of inflation? GLAMOUR spoke to Makala Green, a financial expert from Green Wealth Planning Limited, to find out how this might affect you and – more importantly – what you can do about it.
According to Makala, “Rising inflation is bad news for savers when interest rates are low – it means the value of your money decreases, reducing the buying power. However, if the Bank of England raises rates, this could be good news for savers as interest rates will likely increase.”
She adds, “The State Pension increases in line with inflation CPI (above wage growth or 2.5%), so increased inflation could mean more money provided in retirement, although the government has hinted they might cut this link as part of the triple lock.
“Some private pensions are linked with inflation, meaning the monthly amount you pay could increase. You have the option to make level payments that will remain the same if increases are not affordable.”
Here are Makala’s top tips for protecting your finances:
Stay alert: keep up with inflation news; there is still a lot of speculation and we remain unsure how inflation will impact us in future. Keep a watchful eye on price hikes such as airfare, holidays, hotels, cars, car rentals, computers, and food, just to name a few. The changes in the costs of goods and services may cause you to change your mind.