Warning for pensioners as inflation hits 30-year high
The cost of living crisis was turbocharged by soaring prices last month.
Inflation hit a 30-year high of 5.4 per cent, according to the Office for National Statistics (ONS).
This trampled economists’ expectations of a 5.2 per cent rise. Bank of england governor Andrew Bailey has said he is worried such red-hot levels of inflation could last for much longer than initially expected.
The huge hit to finances is likely to push the Bank of england into hiking interest rates next month, as it attempts to keep a lid on rising prices by encouraging families to save rather than spend. But this would intensify the pain for many because the cost of mortgages and other loans would jump.
economists have warned creeping inflation is the biggest threat facing the Government. Paul Dales, chief UK economist at consultancy Capital economics, said: ‘While people are disgusted by the No 10 parties, what really matters is their own financial position.
‘A surge in inflation is going to worsen that for everyone. What’s particularly hard about this bout of inflation is you can’t really avoid it – you have to pay for food and gas and electricity.’
Pensioners will be hit particularly hard after ministers broke the ‘triple lock’ promise, meaning
their pensions will tick up by just 3.1 per cent in April instead of rising in line with inflation. And for households across the board, increased spending will be unavoidable. The average household is likely to be paying £2,000 a year on electricity and gas from April, according to think-tank the Resolution Foundation, as the price cap on bills is lifted again. Mr Bailey has said he is ‘worried’ as he had thought rising energy prices and supply chain chaos caused by the pandemic would be ‘transitory’. But traders, who had expected energy prices to return to pre-Covid levels in the summer, are now pushing their calculations back to the end of next year.
energy bills spiked at the end of last year and households are also braced for tax hikes from April, as Chancellor Rishi Sunak attempts to pull in more money to pay for the NhS and social care.
Families will also feel the pinch when shopping for essentials such as food, which was the largest contributor to December’s rise in inflation according to the ONS.
And Capital economics thinks inflation could top 7 per cent in the spring. Becky O’Connor, of investment platform Interactive Investor, said: ‘It’s clearly very hard for low-income households already living on the edge to manage increases in the cost of essentials such as food and energy.’
The rise in inflation came as data showed the number of people struggling to keep up with bills and loan repayments has doubled since the start of the pandemic to almost one in three, or around 15 million people.
Phil Andrew, chief executive of debt charity StepChange, said: ‘The sharp rise in the number of people struggling to meet their financial commitments should raise alarm bells across government, banks and regulators.’
Around two million homeowners with variable rate mortgages will be hit almost immediately if the Bank of england does increase interest rates again next month.
A 0.5 per cent increase would cost borrowers with a typical £150,000 loan taken over 25 years an extra £21 a month, or £252 a year, according to figures from broker L&C. And if rates rise by 1.25 per cent, which analysts predict they could by the end of the year, they would pay an extra £84 a month or £1,008 a year.
Someone with a £450,000 mortgage would pay an extra £3,024 a year at 1.25 per cent.