2023 has, so far, been no different to 2022 in terms of financial challenges. The cost-of-living crisis continues to heavily impact millions of households in the UK, having begun with the surprise hike to energy bills in late 2021. As such, managing our finances has become a vital act, to better weather the challenges of the present and remain resilient against the future. But what are the challenges faced by today’s households?
Rising Interest Rates and Your Finances
Interest rates have seen sustained increases over the last two years, amounting to the highest increase in 15 years. These interest rate increases should work in two ways; loans and other financial products cost more, while savings accounts and other such instruments yield more. Unfortunately though, the increased savings rates are lagging and savers aren’t yet seeing the returns that they should.
The most negative impacts of rising inflation, arguably, came from the steep rise in the cost of mortgages towards the end of 2022. Recent homeowners, alongside those whose fixed terms were ended, found themselves paying significantly more each month. Meanwhile, those hunting for their first property were priced out. There was little to do about this, but high-interest rates in general can make saving a little less involved.
Weathering High Rates of Inflation
The aforementioned high-interest rates are, in large part, the Bank of England’s orchestrated response to a more fundamental issue plaguing the national economy: inflation. Some hikes to interest rates were reactive, in response to Liz Truss’s emergency budget, but most were considered uplifts designed to limit the extent to which inflation rose.
The rate of inflation peaked above 10% in 2022, and, while lower today, is not showing any sign of coming back down to the 2% that the Bank of England was aiming. It is also the case that inflation is not uniformly distributed. Some items or services have seen higher price hikes than others in the same time period, with ‘poverty’ food items a key example of disproportionately more expensive products.
What, then, can be done to combat this? Save for budgeting hard and altering your spending habits, the best way to weather the storm without impacting living standards would be to identify alternative and additional means of income. If you have a spare room you could take advantage of tax breaks and take on a lodger with the rent-a-room scheme. For working-age people, this might mean considering a second job; for retirees, it might mean using equity release to free up money locked in a property.
Forecasts for the Future
The economic situation may be dire for many people at the moment, but it cannot remain dire in perpetuity. For those looking to the future, what indications are there, if any, that change is afoot? For the moment, unfortunately, little looks set to change. Inflation remains high, and Conservative government talking points now reference only the halving of inflation – an undertaking that would still leave many below the poverty line.
Similarly, there is little movement with regard to wages at the moment. Inflation issues sting a little harder for the stagnation of wages – which have spurred historic strike action across the country. There has been government and private sector pushback against these strikes, and the struggle remains an uphill one for underserved workers in the UK.