What happens when inflation rises?
The rate of inflation in the UK is currently 11.1%, pushing the cost of household bills and essentials to a 41 year high.*
This is a full percentage point higher than October where the rate was at 10.1%, meaning it is rising rapidly.
This is worrying news for a lot of UK families, after a year of price increase after price increase. The current cost of living crisis has put strain on many people, and you may be unsure as to how this latest rise will affect your family.
In our latest cost of living blog, we’re discussing inflation rates, why they are rising and what can happen because of this.
Inflation rise UK
Inflation is causing the cost of energy and food to soar. This is hitting people with low incomes the hardest, with their cost of living increasing dramatically.
Whether on a lower income or not, it can be worrying to see a rise in your outgoing expenses. This can lead to a need for cutbacks and budgeting in order to get by. Even though some people may end up with rising wages, this can actually make inflation worse due to companies then needing to charge more to make a profit.
There are government cost of living support schemes in place that could be very beneficial in this situation. You may be eligible for support payments to help pay some of your bills so it is worth checking this if you are concerned about affording higher prices.
Learn more in one our blog dedicated to dealing with the increased cost of living in the UK.
Why is inflation rising?
Inflation refers to when prices increase and the rate at which they do so. If the percentage is higher, this means that prices are rising more rapidly. The official way of measuring inflation is referred to as the consumer price index (CPI).
There are numerous reasons for high inflation in recent months, which has led to financial difficulties for many. Based on the last few months, we can expect inflation may not decrease for a while and could even rise further.
What causes inflation to rise?
There are numerous reasons currently causing higher inflation. The main ones include:
- Increase in the price of and demand for goods and services
- Less products available (less supply and increased demand)
- Issues with supply chains for goods
- After effects of the Covid-19 pandemic
- The war between Russia and Ukraine
- Import and export disruption due to Brexit
- Wage increases and increase in the cost of raw materials (cost push inflation)
Inflation increases will impact many things in the UK, for at least the next few months if not longer. It will mean the prices of goods and essentials such as food, electricity and heat will be far higher than they were previously.
What does a rise in inflation mean?
Households will now likely find themselves on a tighter budget so they can still afford all their essential bills. This will mean many people will consider reducing their monthly expenses wherever possible.
You may think adding an additional expense does not make sense during this time which is understandable. It may be sensible though to pay a small amount now to equal more security moving forwards.
A policy like critical illness cover for example, will pay you a tax-free lump sum if you were to be diagnosed with a serious illness – and for very reasonable monthly pricing.
With households facing higher costs for the foreseeable future, you and your loved ones could struggle immensely if you were suddenly unable to work due to illness. The right policy can offer you peace of mind, knowing your family’s well-being is well covered.
What happens when inflation rises UK?
There will likely be further interest rate rises to try and combat inflation. Currently the Bank of England’s base interest rate is 3% but it is possible this will be increased in the coming weeks.
This would affect anyone with a loan, credit agreement or mortgage as this will lead to higher payments. If this applies to you, it will be wise to brace yourself for a rise in monthly costs.
It could be a good idea to review non-essential expenses such as gym memberships or online subscriptions. Removing some of these could free up additional funds that can be used towards some of your larger expenses.
Is inflation rising?
Inflation has been increasing at a steady rate in recent months. This means a lot of people facing much higher costs for essentials such as energy and food.
The cost of rent is also rising at the fastest rate in six years, meaning even more increases in monthly expenses.**
In a time of financial uncertainty, it makes sense to want your family to be as protected as possible. You may think an expense such as life insurance or income protection is an extra that isn’t currently needed but it can be very beneficial to have in place.
If you were to become ill or injured, or in the worst-case pass away, your family could be facing serious financial difficulty without your support. A life cover policy can act as a safety net, ensuring they would receive support when it is crucially needed.
If you have a current policy in place, speak to our expert team about reviewing it. We can compare policies across providers to make sure you are not paying more than you need to.
*according to the BBC
**according to The Guardian