UK inflation has surged to another 40-year high as fuel and energy prices rocketed amid the ongoing cost of living crisis, according to new official figures from the Office for National Statistics (ONS). It said Consumer Prices Index (CPI) inflation rose to 9.4% in June, up from 9.1% in May.
This remains the highest level since February 1982 and will put additional pressure on cash-strapped households trying to stay on top of their already tightened budgets. Combined with eye-watering gas and electricity tariff increases, consumers are facing soaring costs at every turn.
The most dangerous is the upcoming increase to the energy price cap which experts at Cornwall Insight are now predicting to rise by 65% from £1,971 at the moment, to an unimaginable £3,245 from October 1 with a further increase expected for January. Something which Martin Lewis addressed on Tuesday in a stark video open letter to every household across the UK and the Conservative Party leadership candidates.
He urged the future Prime Minister to address the ‘financial time bomb’ the country is sitting on before it explodes in September - read more about this here.
Here is an overview of what lies ahead over the coming months and what can be done to offset price rises and keep households afloat through the cost of living crisis.
Why is everything more expensive?
Covid-19 has hit global supply chains with a combination of pent-up demand and delays to shipping as factories across the world face lockdowns and worker absences. This has led to prices rising, particularly for raw materials.
Food prices have also risen as wages increase, including for HGV drivers due to recent shortages, with thousands of drivers leaving the UK to return to their home countries in the EU.
Pressure on food and energy prices is being exacerbated as the full impact of Russia’s invasion of Ukraine and the sanctions against President Vladimir Putin’s regime unfold.
The UN Food and Agriculture Organisation has projected that the conflict will lead to a rise in global food prices in 2022 of between 8% and 22%.
Will inflation remain high?
The peak in inflation is still some way off, and is not expected to return to the 2% target before mid-2024.
This means more pain is on the way for household budgets as the high rate of inflation continues to outpace wage growth, bringing down the real value of incomes across the UK.
Will energy bills get higher and what can I do to cope with them?
Experts at Cornwall Insight said bills could rise from a current record of £1,971 to £3,245 in October and then further to £3,364 at the start of next year.
The forecasts are based on what an average household will spend on gas and electricity in a year, however, a household that buys more energy could see higher bills.
Generally, households are encouraged to aim towards building up a credit balance with their supplier to offset higher prices in winter, although there is widespread concern that the increase in Ofgem’s price cap in October will stretch many households beyond what they can afford.
The best option now is to ensure homes are insulated and as energy efficient as possible.
The only real way to cut energy costs is to use as little as possible in the first place.
What about food, and how can I reduce the cost of my weekly shopping?
Households are being hit by sharply higher grocery bills, with food and non-alcoholic drink prices having risen by 9.8% in the year to June 2022 - the highest rate since March 2009.
Food prices lifted 1.2% month on month in June, which follows similar increases in April and May as higher cost pressures and the impact of the Ukraine war filter down to the supermarket shelves.
Market experts at Kantar said grocery price inflation is seeing more shoppers turning to cheaper products and supermarket own-brand labels, while customers are also making fewer trips to stores to save on petrol costs.
Consumers are advised to think about shopping for own-brand or value grocery products and set a strict, affordable supermarket budget. Supermarket loyalty schemes can help with making savings.
Cashback sites, and their welcome offers, can be another way of making household budgets stretch further.
What UK Government help is coming?
A first instalment of £326 has been paid out to low-income households on benefits from July 14 and is expected to be completed by July 31, with a second payment of £324 to follow in the autumn - the date has not yet been announced.
The Department for Work and Pensions (DWP) and HM Revenue and Customs (HMRC) have been identifying those eligible to receive a cost of living payment using a computer programme.
People who claim both a means-tested qualifying benefit and Tax Credits from HMRC, will receive the £326 from DWP, however, those who only claim Working Tax Credits or Child Tax Credits will get the first of their two payments later this year - an autumn date has still to be announced.
Pensioner households will also receive an extra £300 to help cover the rising cost of energy this winter, while people on disability benefits will receive an extra £150 payment in September.
From October, households will also have £400 taken off energy bills.
People may also see an income boost in their pay packets, as national insurance (NI) starting thresholds increased from £9,880 to £12,570 from July 6.
However, this was after a 1.25 percentage point increase in NI in April, to help pay for health and social care.
What else can I do to avoid the pinch?
There is no way around it - households need to start thinking very carefully about their spending across the board to counter those price rises they cannot control such as energy and fuel.
A quick look over the monthly bank statement should be a good start.
Always shop around and use comparison sites for phone, broadband and insurance rather than just rolling over into the next year to keep charges and premiums at a minimum.
Consider whether subscriptions are still useful and providing a good deal - many people signed up to new services such as Spotify, Netflix or Sky during lockdown and may no longer use them as much.
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