CRUNCH TIME . . .
As inflation races towards 2.7% wages have so far risen faster ... but experts warn we’re on the brink of REALLY getting poorer
HOUSEHOLDS are facing a fresh squeeze on their budgets as official inflation figures due this week are expected to show prices rising at their fastest rate since 2013.
Higher vehicle taxes, energy price rises and the Brexit blow of a weaker pound have all contributed to the pressure on consumers. Economists are warning that wage rises may already be l agging behind prices – making households poorer in real terms.
The official data will follow hard on the heels of the latest revelations of rising shop prices reported in The Mail on Sunday this weekend, with a raft of price increases from Premier Foods, the maker of such national favourites as Mr Kipling cakes and Ambrosia custard.
City forecasters expect the Office for National Statistics to say on Tuesday that the official measure of annual inflation – the Consumer Prices Index (CPI) – rose 2.7 per cent in April, up from 2.3 per cent in March. Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said the difference in the timing of Easter (April this year, March last year) meant price rises associated with Easter breaks will only show up now.
‘Several utility c o mpa ni e s increased prices in April too, which will boost inflation,’ he added.
Reforms to vehicle excise duty will mean consumers paid slightly more on average on new cars bought and registered from April 1.
Tombs also said: ‘Retailers are continuing to adjust prices upwards in response to sterling’s fall.’
Households have faced price rises across a range of imported products since late last year, prompted by the dramatic collapse in sterling following the Brexit referendum.
As well as facing price increases on a range of Premier Foods products, consumers have suffered rises on a number of other popular grocery products in recent months including Marmite, Birds Eye fishfingers and Walkers crisps.
The ONS is expected to say that the previous official measure of annual inflation, the Retail Prices Index (RPI), rose by 3.4 per cent in April, after an increase of 3.1 per cent in March. This is still used in some cases, so regulated rail fares will rise next year by July’s RPI.
The latest rises come in the wake of a fresh warning of a consumer squeeze from Bank of England Governor Mark Carney, though he said the Bank believed inflation would ease off eventually.
‘Every household situation is different. It will be challenging this year, but high inflation is temporary,’ he said last week at the launch of the Bank’s inflation report.
Wages are for the moment rising faster than prices, according to comparison of the growth in the three months to February. Economists use the three-month averages to measure the trend as it is less volatile. Headline pay growth including bonuses in the three months to February 2017 was 2.3 per cent, compared with price growth of 1.9 per cent.
Figures for pay growth for April will not be available for another month, but economists believe a squeeze has already begun.
Howard Archer, chief UK economist for consultancy IHS Global Insight, said: ‘I suspect that when you look back, inflation will have been higher than earnings growth for the three months to April.’
Archer now expects inflation to peak at 3 per cent this year, not 3.3 per cent, as weakening economic growth damps demand. Price rises will drop away in 2017, he said.
Consultancy Capital Economics said in a note to clients that it expects April’s CPI to be 2.8 per cent: ‘CPI inflation looks set to have taken a big jump up in April. Thereafter, however, we don’t think inflation has too much further to rise.’
Patrick Minford, professor of applied economics at Cardiff Business School, expects households to see their pay increase towards the end of this year. He said: ‘We did expect a squeeze on real wages. There is some wage pressure building, and shortages of labour will start to hit next year or later this year.’
The Bank of England says that its forecasts are based on a smooth Brexit transition, with an agreement settled before March 2019 on a future trading arrangement and transitional arrangements in place before a new deal is implemented.
The Bank now expects slightly slower economic growth this year than it last forecast, with Gross Domestic Product (GDP) 0.1 percentage points lower at 1.9 per cent in 2017, and 1.7 per cent in 2018, as greater foreign trade and investment offset lower domestic spending. But David Meier, an economist at Swiss bank Julius Baer, said the Bank was being bullish.
‘With the Brexit talks between the European Union and UK yet to begin and creating economic uncertainty, in particular for cross-border relations, we think it is very optimistic to bet on increases in trade and investments,’ he said.
Retail sales figures could offset some of the gloom this week, with a 2 per cent rebound expected by Capital Economics this month.
‘The 1.8 per cent monthly drop in volumes in March added to the evidence that the consumer spending slowdown is gathering pace. But surveys point to a recovery in high street spending in April.’
ALMOST half of households do not shop around for their gas, electricity, broadband and phone providers. This is despite the savings totalling hundreds of pounds a year for those who switch.
Moving energy supplier can save as much as £ 300 a year while broadband costs could be slashed by £100. The biggest savings will typically be made by households that have not switched before and where they are paying standard variable rate tariffs for their energy. These tariffs have risen in price by an average 14 per cent over the past five years.
A typical family paying their energy bills monthly by direct debit on a standard tariff with British Gas will pay about £1,044 a year for their gas and electricity, based on average usage.
By switching to one of the cheapest fixed rate tariffs with Avro Energy, they could save £165 over 12 months. Consumers must pay by monthly direct debit to take advantage of the best rates.
Although an energy price cap could be on the way following the General Election, people should take action now to make savings. Websites such as uSwitch, energyhelpline and gocompare are easy to use and will complete the switch for you.
Even consumers who have switched to competitive fixed rate fuel tariffs are being warned to check when their deal is due to expire as a range of tariffs with seven big providers – including EDF Energy, First Utility, ScottishPower and npower – are coming to an end in the next few weeks.
Failure to switch will mean tens of thousands of consumers could pay up to £400 a year more – as they will automatically be moved on to their provider’s standard tariff.
Broadband users who have not switched for years and are no longer on a competitive contract (lower price contracts are offered when a new customer signs up with a provider) are likely to be paying around £100 a year more than those on the best deals.
The cheapest broadband deals are offered by Plusnet at £18 a month or TenTel at £18.50 a month. These prices include phone line rental.
Go back t o your existing provider armed with the best-buy deals to see if they can match them. Some companies will offer big discounts to avoid losing customers. HOMEOWNERS paying their lender’s standard variable rate will invariably save money by securing a low fixed rate, discount or tracker home loan.
Fixed-rate loans have never been so appealing. For example, HSBC has just launched a five-year fix at 1.69 per cent – available to those with at least 40 per cent equity or deposit on their property.
Other competitively priced fiveyear fixed rate loans are available from Yorkshire Building Society (1.74 per cent, 35 per cent equity) and Leeds Building Society (2.2 per cent, 15 per cent deposit).
Two-year fixes start from 1.18 per cent (Yorkshire Building Society). Ten years of payment security can be bought at a mortgage rate of 2.49 per cent (Coventry).
Yorkshire also has one of the best discounted rate deals with a starting rate of 0.89 per cent over two years (3.85 per cent discount off its standard variable rate of 4.74 per cent). Remember though, if the Bank of England puts interest rates up this mortgage rate will rise. Borrowers need 35 per cent equity.
HSBC has a two-year tracker deal – where the rate tracks at 0.84 per cent above the Bank of England base rate of 0.25 per cent giving a starting rate of 1.09 per cent. Again, the pay rate will rise if base rate increases.
HSBC also offers a lifetime tracker at base rate plus 1.84 per cent. This means a starting rate of 2.09 per cent and is available to those with 40 per cent equity. Switching lender is quick and simple, and a fee-free broker can guide you through the process. Borrower son a standard variable rate will usually not be charged any penalty to move lender.
To give an example of the savings, a borrower with a £200,000 repayment mortgage paying Nationwide Building Society’s standard variable rate at 3.74 per cent would be paying £1,027 a month. If the same borrower switched to the two-year fixed rate at 1.18 per cent with Yorkshire, their monthly repayments would fall to £770. Even after paying typical setup fees of £995 the savings over two years would top £5,000.
OVER their lifetime, the average family spends an extraordinary £1.9 million on everyday items such as food, clothes, takeaways, eating out, travel and holidays. This figure, calculated by financial planner Tilney, includes £ 73,000 of petrol costs.
Petrol and diesel prices may have been cut at the forecourt in recent weeks due to falling oil prices and a supermarket price war. But fuel costs are still up by as much as 20 per cent since last year. Websites such as petrolprices, which show pump prices by postcode, can help motorists find the cheapest petrol.
Savings can be enhanced by collecting reward points or using the right plastic. One of the best cards to purchase petrol with is the Tesco Clubcard credit card, especially if you fill up at a Tesco garage.
The card rewards users with five Tesco Clubcard points for every £4 spent on petrol at the supermarket – and one point for every £8 spent elsewhere. Clubcard points are turned into vouchers which can be redeemed against the cost of future petrol – 500 points being worth £5.
The Nectar reward scheme can be used if you buy petrol at a Sainsbury’s garage. You will earn one point per litre of fuel with 250 points earning you £1 – which can then be redeemed against future fuel purchases.
Simple alterations to the way you drive can also mean your fuel stretching further. Motoring organisation the AA says ‘smooth and gentle’ is the best way to drive for fuel efficiency, accelerating gently and avoiding sharp braking. THIS is the nation’s favourite pastime, but its cost – everything from much-loved consumer goods through to tea and coffee to clothes and furniture – is rising. Higher food prices have been one of the main factors in the recent jump in inflation.
When it comes to food shopping, using a comparison website such as mySupermarket can help locate the cheapest supermarket based on the items in your weekly shop. As with petrol purchases make the most of loyalty reward schemes, such as Tesco Clubcard and Nectar rewards at Sainsbury’s, to earn money back.
Charlotte Tyson, from Wakefield, West Yorkshire, is a self-confessed shopaholic but she makes sure she always seeks out the best bargains and uses vouchers and discount offer codes whenever possible. Some of the most popular websites i nclude discountvouchers and vouchercodes.
The 23-year-old, who worked in three part-time jobs to fund herself through university and now works in marketing for a retail company, says: ‘I do love to shop, but I am a bargain hunter. I never buy anything before scouring the market to get the best price. I will then look for a discount code to enhance my savings. My strategy has definitely paid off over the years.’ FOR many families the annual summer holiday is the most expensive purchase of the year, often consuming as much as two months of a breadwinner’s pay.
It is also where big savings can be made for those willing to shop around. Consumers who are flexible on when they can travel stand to be the biggest winners as flight and holiday prices vary considerably depending on the month, day and time of travel.
Useful comparison websites include TravelSupermarket and IceLolly. It also makes sense to scour the websites of the big tour operators such as Thomson, Thomas Cook and First Choice for any cheap, last-minute deals.Also, do not be afraid to haggle by calling a tour operator directly, particularly if you have seen similar deals cheaper elsewhere.
Holiday offer websites such as Travelzoo and Holidaypirates show cheap deals and often have flash sales. Make sure the holiday is ATOL or ABTA protected.
Air miles-style reward schemes can be lucrative if you are a regular traveller. Secondary school religious education teacher Hugo Goodson spends t housands of pounds every year on his love of travel. In recent years he has been to Argentina, Antarctica, Ethiopia and Finland, pursuing his hobby of photography.
But Hugo, 35, always makes big savings on his trips by using the Avios rewards scheme – formerly Airmiles. Avios is the British Airways One World travel reward programme, which includes 15 airlines such as Qantas, Cathay Pacific and American Airlines.
Members, who register for free, collect reward points towards flights, hotels and car hire. This is done every time they buy goods at retailers including Tesco, Shell, Pizza Express, Marks and Spencer, Argos, Apple and John Lewis.
For example, cardholders will earn two Avios points per £1 spent in John Lewis and up to six points per £1 spent in Pizza Express restaurants. It costs around 9,000 Avios points per person for a return flight to Paris or up to 15,000 for a return trip to Rome. Taxes and carrier charges must be paid on top.
Hugo, from Market Harborough, Leicestershire, says: ‘I am planning trips to Peru, Chile, Easter Island and Uruguay this summer and I will be using 120,000 of my Avios points to pay for this.’