As inflation is expected to grow, consumers are being warned of impending "pain."
Prices are growing by 9.1 percent a year in the UK -
the greatest pace for 40 years.
As rising costs for necessities like gasoline, electricity, and groceries put a strain on family finances, the Bank of England has issued a warning that inflation might hit 11 percent over the next few months.
Why has inflation risen so much?
A
rise in prices over time is what economists call inflation. By way of
illustration, if the price of a loaf of bread goes from £1.00 in one year to
£1.09. the next year, we may say that yearly inflation is 9%.
- Since oil and gas prices have remained at high levels, in part because of the conflict in Ukraine, energy costs are one of the key factors driving inflation right now. Due to an increase in the energy price limit in April, the average cost of gas and electricity in the United Kingdom has increased by 53.5% and 95.5%, respectively, compared to the same time last year.
- Increases
in fuel costs are also being felt, with average petrol prices reaching 186.59p
per litre in June 2022, up from 160.31p in early May and 130.5p a year earlier.
In June, prices reached an all-time high.
- As
global grain output is being squeezed by the conflict in Ukraine, food costs
are also rising.
- An
increase in food costs throughout the world is a "serious issue,"
according to the governor of the Bank of England.
- Expenses
in the hospitality industry are also on the rise, as are those of basic
consumer products.
- Companies
may now be subject to a higher value-added tax (VAT), which is levied on
purchases of goods and services. VAT for the hotel and tourist industries was
decreased by the government during the epidemic, but as of April 1st, the
normal amount of 20% was reinstated.
- Postage
and water bills in England and Wales have also gone up, as have the rates of
air passenger duty and car excise tax.
- Some
homeowners may find that their mortgage payments increase in cost when interest
rates rise.
Rising cost of groceries
How much have increases in food and drink prices been?
What's happening to wages?
Inflation is
outpacing the average rate of salary rise.
There was a 4.2%
increase in base pay between February and April, according to the ONS. With
inflation factored in, however, normal pay is down 2.2% from a year earlier.
Due to Brexit and
the epidemic, certain sectors of the economy have had to raise salaries to
combat employee shortages. The National Living Wage increased to £9.50 per
hour, a 6.6% increase, for the lowest paid workers on April 1.
Since that date, however, the Health and Social Care Levy has increased National Insurance payments by 1.25 pence per pound for anyone earning above £9,880 annually (£12,570 beginning in July).
Who measures the UK's inflation rate?
Inflation is the
average annual percentage increase in prices for a basket of goods and
services.
The Office of
National Statistics (ONS) in the United Kingdom calculates this number by
tracking the costs of a large number of commonplace commodities.
The information here
is always current. Tinned beans and sports bras were introduced in 2022 to
accommodate the growing demand for plant-based diets and physical activity.
Each month, the ONS
produces inflation data that demonstrates how much these costs have increased when
compared to the same month one year before. The term "CPI" stands for
"Consumer Price Index" (CPI).
The annual rate of
inflation in May was 9.1 percent, up from 9 percent in April.
The Bank of England has issued a warning that UK inflation might
reach 11% by fall 2022, mostly due to increasing global energy costs.
What
can be done to tackle inflation?
When inflation rises, the Bank of England often responds by
increasing interest rates. While this is good news for savers, it may cause
mortgage payments to rise for certain borrowers.
What is the maximum level for UK interest rates?
In theory, if borrowing costs go up, consumers will be less able
to afford goods and services. Because of this, they will reduce their spending,
slowing the rate at which prices are increasing.
Yet when inflation is driven by factors outside the control of the UK, such as increasing global energy costs, increases in interest rates in the UK will only have a limited impact.
