‘A vicious cycle of rising costs’
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ONLY ONE in five people knows how inflation works and how it affects them, a new study has revealed while a third of people in the UK believe they will be suffering financially by the end of the year.
As inflation rises to 7.5 per cent, reaching its highest level in 30 years, energy prices more than double and interest rates look set to rise again, millions across the UK face higher outgoings and a cost-of-living crisis in the coming months.
In a survey commissioned by Saxo Markets, it was found that 33 per cent of the 2,000 participants expect to be in a worse off situation financially by the start of 2023.
Across the UK, it was only in London that more people thought they would be in a better position (40 per cent) by year’s end.
Elsewhere, the majority in the North West (37 per cent), North East (38 per cent), West Midlands (37 per cent) and South East (36 per cent) felt they would be in a worse position.
Younger voters seemed more optimistic about the future with 32 per cent of 16-24-year-olds of the belief they would be better off by the end of the year compared to just 21 per cent who felt things would be worse.
This was compared to 40 per cent of 45-54-year-olds and 38% of people over 55, who were of the opinion things they would be in a worse position.
Across the board, 53 per cent of people voted “no” when asked if they thought the economy would improve this year compared to 31% who voted “yes”.
The survey also found just 21 per cent of people admitted to knowing how inflation works and how it affected them directly.
People in Scotland and the North East were most clued up on the subject with 28 per cent and 25 per cent, respectively, admitting to knowing most about inflation.
Mike Owens, global sales trader at Saxo Markets, said: “2022 is likely to present a number of financial challenges for people in the UK, particularly those on low incomes as tighter fiscal policy like tax rises and to a greater extent, higher inflation grip the nation at the same time, with the squeeze most noticeable in April when energy bills will rise significantly.
“The growing pressures of rising inflation levels has had a big impact on the cost of living and therefore everyday items are becoming more expensive by the day.
“Businesses are also feeling the effects of slower supply chains, higher production costs and soaring energy prices giving retailers even more of a reason to hike prices on their goods.
“Consumers have accumulated plenty of ‘excess savings’ during the pandemic which will help to offset some of the disposable income shock, but worth noting that this savings buffer is more heavily concentrated in higherincome earners, who are less likely to cut back their spending dramatically in response to the rising cost of living, partly explaining why Londoners are the most optimistic about the year ahead. The survey results showing a third of participants feel they will be financially worse off by the end of 2022 therefore represents a sentiment that the population feels trapped in a vicious cycle of rising costs with little room to escape.
“With just one in five people understanding how inflation works and how it impacts us, it suggests the Government and the Bank of England should do all they can to help the public understand the ramifications of any further updates in line with inflation and therefore changes to people’s everyday circumstances.”