The cost of living crisis is continuing to get worse before it gets better. The latest predictions from economists say that inflation is set to hit a hefty 9% this week.
It comes two weeks after the Bank of England raised interest rates and said the UK could be heading for a recession. Put simply, inflation is a way of measuring how much prices are increasing.
The measure is calculated by looking at how much the cost of everyday essentials is increasing. For example, if milk rises from £1 to £1.05, then milk inflation is 5%, reports the Mirror.
It is also referred to by economists as a decline in purchasing power, as buyers will get less for their money. The April figures for inflation will be released on Friday and forecasts reckon it will increase yet further on March's 7% rate.
Chief economist at Panmure Gordon, Simon French, said he “wouldn't at all be surprised” if the rate of inflation reaches 9% this week. He said the latest figures will be influenced largely by the recent surge in household energy bills.
“There will be a big jump because the April price cap is captured within it,” he added.
The Bank of England has already warned inflation is heading for 10% - which will mean the consumer prices index will be at its highest level since the 1980s. The Government has been criticised for failing to do more to help ease the cost of living crisis – and pressing ahead with deeply unpopular tax rises.
Business Secretary Kwasi Kwarteng said that there was “clearly” an issue with high levels of inflation, but stopped short of criticising Bank of England Governor Andrew Bailey. Mr Bailey is due to face the Treasury Select Committee on Monday, as he’s quizzed on whether the country is about to enter a recession. A recession is defined as two consecutive quarters of declining GDP.
The Bank of England this month raised interest rates from 0.1% to a 13-year high of 1% in a bid to put a lid on spiralling prices. The bank’s aim is to keep inflation around the 2% mark.
If your salary hasn’t kept up with inflation - which is the case for most workers - you will find your household finances are squeezed. That's because as prices rise on food, energy and fuel, our earnings aren't keeping up, and we start to struggle with money.
This has triggered the recent cost of living crisis. Rising inflation also erodes the value of your savings.
Let’s imagine you have £100 sitting in a zero-interest bank account. Over time, inflation will reduce the ‘real’ value of your £100. After 25 years, you’ll still have £100, but you’ll be able to buy significantly less with it than you could at the start.
If you’re saving for a long-term goal, like retirement, then it’s really important to factor in inflation. You might think saving up £600,000 will set you up for a comfortable retirement but, in 20 years’ time, that £600,000 probably won’t go as far as it does now.
Over the past 40 years, inflation has averaged 3.8%, which means that unless your money has grown by at least 3.8% each year, its real value will have fallen.
