The Cost of Living Crisis and How it is Effecting so Many Households
The current cost of living crisis is having a significant impact on many households. With increasing food prices and soaring energy prices, many families are left wondering how they can get by.
The increase in interest rates have also caused problems for many mortgage holders, with many having to make cuts elsewhere just to afford their homes. This has also posed a problem for business owners as their rent or mortgage could have increased.
Many employers are doing what they can for their employees by offering pay raises to match inflation where possible, but this isn’t always feasible. Interest rates have also been frozen for now. However, this doesn’t mean things will improve promptly, and there are several reasons why many households will be worse off.
The Cost Of Living On Jobs and Wages
During 2023, workers have attempted to get pay rises in line with the cost of living increase. Many employers have seen the value in their staff and skill set and have done what they can to increase their wages. However, earlier in the year, over 200,000 jobs were lost across the UK as employers tried to combat their increase in outgoings.
Although this is a relatively modest increase in unemployment, it’s forecast that this will increase further as businesses consider their profit margin at this difficult time.
Even the Bank of England is forecasting that inflation will remain above the 2% target next year, so prices will keep increasing in the long run.
Food Price Increases
One of the areas that everyone is talking about is the increase in food prices. This has been one of the most stubborn areas of inflation during 2023. This has led to many social media videos on how to feed your family for less.
Food shopping prices are set to slow down, but many analysts warn that food costs will not return to what they were last year.
Tax and the Cost of Living
If you’re lucky enough that your salary keeps up with the rising cost of living, and even if you receive a substantial increase, checking your payslip might not bring much satisfaction.
Since 2021, the government has chosen not to adjust the income tax thresholds in line with inflation. As earnings continue to rise, this policy has led to over two million new taxpayers since 2021 and pushed 1.3 million individuals into the higher 40% tax bracket, which is counteractive.
Current plans indicate that the thresholds will not be reviewed until 2028, resulting in more taxpayers and higher tax bills.
When you consider the tax alterations along with the surge in food prices, interest rates and bill prices, the Resolution Foundation has predicted that the income of a typical working-age household will be 4% lower in 2024 compared to 2021.
Considering that the government’s cost-of-living assistance is also set to conclude after winter, those with below-average incomes may be hit the hardest. According to the think tank, after accounting for taxes and inflation, this group could see their revenues decrease by an additional 1% between 2024 and 2025.
So, Can We Borrow Money to Get Through the Cost of Living?
In short, no, this would not be the wisest move. Whether it’s for a mortgage or a personal loan, interest rates have soared recently, with monthly repayments increasing by hundreds of pounds.
Mortgage holders have been in the direct line of fire for this inflation battle. The governor of the Bank of England has insinuated that interest rates have no plan for returning down any time soon.
Analysts at Oxford Economics predict that total debt repayments in the UK for 2024 will cost households up to 4 times more than they did in 2021. There is also an expected rise in repossessions.
Economists predict a potential 5% further decrease in house prices in 2024, which may seem like good odds; however, the persistently high mortgage rates still pose a challenge for anyone trying to enter or move up the property ladder.
Many young individuals in the home-buying process opt to rent to save money. This is now leading to severe pressures, and rents rise – some of these increases in London are steeper than they have been since 2006.
Considering that many are likely to continue facing financial constraints, consumer spending is also predicted to decrease. Because of this, numerous economists express concerns about the outlook for economic growth from now and into the future.
How can Essendon Help?
At Essendon, we work with businesses and individuals to help them understand their finances. If you are struggling with debt or a mortgage or would like some advice on how to proceed, then contact our team today.
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