Inflation could hit 15% this year, economists warn – what it means for your finances
INFLATION could hit 15% this winter, after hitting a 40-year high of 9.4% this month.
Bank of England economists warn about the increase as they hint at steeper interest rates to cool inflation.
The nation is struggling to afford food, petrol, bills and other living costs as it hits its highest inflation figure since 1982, according to the Office for National Statistics.
Although Bank of England predicted it would hit 11% by the end of the year, it’s likely to climb higher still.
Mats Persson of EY told The Sunday Times it could hit 15% in the winter if Russia “turns off the taps”, meaning if it shuts off gas to Europe.
Inflation is the measure of how goods and services change price-wise compared to last year.
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Food and petrol prices have jumped, leaving many shoppers strapped for cash.
For example, food prices and non-alcoholic drinks jumped 9.8% in the year to June – the highest rate seen since March 2009.
Milk, eggs and cheese saw some of the biggest price hikes, as well as vegetables, meat and ready meals.
A pint of milk now costs 55p, up from 42p a year ago, with bread up 9.7% and pasta 15.9%.
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Fuel prices have also soared by a whopping 42.3% – the biggest jump recorded since 1989.
Energy costs are going up could hit £3,000 by the end of the year.
Experts have warned that the nation could be heading towards a recession as the cost of living crisis worsens.
A country is in recession when its economy shrinks over a sustained period of time, rather than growing normally.
It is calculated using GDP which in the UK is the value of all the goods and services added up in pounds.
Generally speaking, if the GDP has fallen over two quarters (or six months), a country is said to be in recession.
Recessions are bad news, because they usually lead to unemployment and wage stagnation.
Although the UK dodged a recession as the Gross Domestic Product (GDP) went up by 0.5% earlier this month, it could still happen as the year goes on.
What does inflation mean for my finances?
When inflation is higher it means prices are rising more quickly and so your money won’t stretch as far.
Wage are not increasing at the same pace as inflation – which means a “real term” pay cut..
Experts say you should keep your savings in a high-interest savings account when inflation soars. That way, your balance should keep in line with rising prices.
The Bank of England has hiked interest rates for a fifth consecutive time, at 1.25%.
But they are still very low by historical standards meaning savings accounts can’t keep up with inflation either.
In order to battle inflation, you should keep an eye out for own-brand food products when you can, as well as seeing what help and funds are available.
For example, the Household Support Fund is there to hand out cash funds and supermarket vouchers to those who need it – it differs depending on which council you’re under.
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If you’re struggling with soaring energy bills, a number of energy firms have hardship funds which offer grants of up to £750 for those struggling with their bills.
If you’re feeling helpless, our Squeeze Team is a panel of experts full of tips and advice to help you cut costs.