With the rate of inflation hitting 9% in the year to date to April 2022, and likely rising to around 10% per cent by the end of this year, UK households are facing significant increases in their expenditure. What might we do to minimise the impact?
What’s happening and why?
No single factor has led to a crisis of this magnitude. UK residents are experiencing the knock-on impact of the pandemic’s aftermath, the reality of Brexit, rising inflation and increases in food, services, fuel and energy costs, combined with potential tax hikes, student loan repayments and more expensive housing.
CreditSpring estimates that the UK is set to borrow an additional £9 billion on credit cards over the next six months to survive the cost of living crisis.
According to a recent survey conducted by Sky News of over 2,000 adults in the UK, three in four think the government is not providing enough support.
The survey further reveals:
- 65% say they are keeping the heating off when they would have otherwise turned it on
- 52% are socialising less
- 44% have switched supermarkets for cheaper alternatives
- 44% are driving less
- 27% have skipped meals due to financial problems
The governor of the Bank of England, Andrew Bailey has spoken of ‘apocalyptic’ food prices on the horizon with cooking essentials such as sunflower oil and wheat, which Ukraine and Russia are major suppliers of, in high demand but with very low supply.
Stepchange says that it has also seen a significant increase in the proportion of clients seeking help with energy debt. Around one in three bill payers (29%) coming to the charity have fallen into arrears on electricity and gas, up from one in seven before the pandemic.
A survey by BDO has found that rising costs are the biggest challenge facing almost half of UK businesses in the next six months. The poll shows that a third of businesses plan to pass higher cost onto customers by increasing the price of goods and services. This is in addition to a third of businesses taking on additional finance as a result of pressure brought about by inflation, with 24% taking on higher debt to ensure survival.
What can we do to survive the crisis and minimise the impact?
- Look for cheaper insurances. Whilst our mortgage or rent and council tax may be ‘fixed,’ we may be able to make savings to annual home and car insurance. Take the time to review the wider market before renewing with your current provider, as there may be some savings to be made.
- Stop paying credit card interest. It may be possible to move balances from several card providers up to 90% or 95% of your allocated credit limit to a 0% balance transfer card. With interest on credit cards typically being at 20% average variable it’s worth the small fee to transfer. Also, if you find you’re relying on your credit card to buy essentials it may be worth swapping to a card that offers an interest free period on purchases. Some deals offer up to two years at 0% interest and if you’re forced to borrow this can offer a short term interest free solution.
- Spring clean your bank account. Are there any unnecessary costs such as subscriptions you are no longer using that can be cancelled with some saving possible? Are you able to reduce your outgoings towards television and broadband packages?
- Make the most of your bank’s app. Keep a track of your finances whilst on the move, set a budget and monitor regularly what you’re spending via the app.
- Are you able to fix your energy tariff? The energy price cap is due to rise again in October. Check with your energy supplier to see if you are able to fix in with your existing supplier when the current fix period ends- making sure that the rate is advantageous.
- Make positive lifestyle changes. Small changes to daily behaviours can save money over a period of time. Identify which home appliances use the most energy compared to others. An energy monitor (a clever and inexpensive device) may be able to help with this. Using less energy in the home such as turning the heating down a degree or two, switching off lights in rooms you’re not using and hanging out washing as the weather improves rather than relying on the tumble drier. Outside of the home preparing a pre-packed lunch and coffee instead of lunch or coffee out can lead to savings of up to £50.00 per week.
- Supermarket discounts and rewards. Does your supermarket have a free loyalty app? Are you able to collect points for shopping? These points can then be redeemed for a tangible discount off the cost of your grocery shop.
- Make sure that you’re getting all the help you’re entitled to. You may be eligible for benefits, grants from the government or charitable support that you aren’t currently claiming.
- Switch your bank account. Some banks are offering initiatives of £100.00 or more to switch to them.
- 'Fakeaway’ takeaways. There’s a growing range in the supermarkets that allow you to recreate your favourite takeaways for a fraction of the cost.
As the shift changes (for some of us) from budgeting to ensure savings targets are met to budgeting to ensure we live within our means, the cost of living crisis storm is not going away any time soon and so we need to take stock of our finances and do what we can to minimise outgoings whilst we hope for better times ahead.
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