Inflation has become a substantial part of the UK’s reality, and it’s growing harder to ignore. Now, it’s not just a topic of conversation for bankers and investing enthusiasts; it’s a reality felt by the ordinary citizen who’s startled by his energy bill and noticing that his weekly groceries are starting to cost more.
It’s hard not to be alarmed when senior members of the Conservative Party named this inflation problem “the biggest political issue that will face us in the next ten years.”
What does inflation mean?
Inflation is the rate at which prices rise. There are many ways to help us track inflation. The consumer prices index (CPI) is the most commonly used by economists.
Government agencies use the inflation rate to mirror the country’s economy and use it to determine anything from how much pensions should be raised to the price of railway tickets.
Investors and economists are closely watching it. Inflation, they believe, is an indication of what is going on in the economy.
How bad is inflation?
On a monthly level, inflation is typically not visible, and mild inflation is not necessarily terrible. People may postpone purchasing non-essential products if prices are decreasing in the expectation of getting them cheaper.
Excessive inflation has ramifications; if prices rise too quickly, it is interpreted as a warning that the economy is in trouble.
At what rate is England’s inflation rising?
The Bank of England has been underestimating the rise in inflation since the beginning of this year. The headline inflation rate in the United Kingdom has risen to a nine-year high of 3.2% in August, from 2% in July.
The Bank of England now believes the figure might rise to over 4% by December and remain like that until spring, necessitating quick preparation and action on their part.
What caused this inflation?
This inflation was inevitable for the following reasons:
- The Government is pulling back the tax breaks and other forms of support it gave to different businesses during the pandemic. Business owners are now raising prices to compensate for that.
- There has been a significant increase in demand for oil and gas worldwide. Costs of transporting products are rising with a substantial rise in the price of the product itself.
- It’s growing harder for businesses to recruit workers and meet the demands of their job, which is also raising their costs.
What’s the game plan?
This rise in inflation is a cause of alarm if the interest rates stay at an all-time low. Simply put, your money will not have the same purchasing power it initially had when you decide to take it out of the bank.
Still, there is a glimmer of hope. Usually, if high inflation levels persist for an unreasonably long period, the bank might boost interest rates.
This would be good news for savers and individuals who have money for a deposit, but it might be painful for others who have a mortgage or debts.
It implies that everyone who has borrowed money may see their monthly payments rise, especially if they have mortgages that are linked to the Bank of England’s rates.
While investors believe that the interest rate rise will occur soon, maybe before the end of the year, other economists believe that this may not be the case.
If inflation is caused by external causes, such as worldwide pressure on energy costs, increasing interest rates may not be enough to fix the problem.
It’s currently unclear what the Bank of England intends to do, but it’s something to keep an eye on.