Credit, Collections & Insolvency News
Figures from the Office for National Statistics (ONS) show that inflation hit 5.1% in the 12 months to November, exceeding forecasts of a 4.7% increase and driving the rate further beyond the Bank of England’s (BoE) 2% target.
The rate up on the 4.2% recorded a month earlier and means inflation is now at its highest level since September 2011 when it stood at 5.2%,
ONS chief economist Grant Fitzner said “A wide range of price rises contributed to another steep rise in inflation, which now stands at its highest rate for over a decade.” The increase in inflation will intensify debate over a rise in interest rates, with the BoE’s Monetary Policy Committee meeting today to decide whether to increase rates from a record low. While the Bank is expected to hold rates static while it gauges the impact of the Omicron coronavirus variant, the International Monetary Fund has warned it against “inaction bias”.
Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust said “With inflation rising even higher in November as the cost-of-living squeeze continues, there will be difficulties ahead for households walking a financial tightrope.”
“For those households already struggling, today’s figures will provide no respite. At National Debtline we are seeing the impact of stretched household budgets, where the amount coming in is not enough to cover essential costs like energy, rent and in some cases food. As these essential household costs continue to rise, these challenges will only become harder for many people this winter.
Hugh Fairclough, Partner at RSM, said “Inflation is a double-edged sword for pension savers. On the one hand, the rising cost of everyday items puts a squeeze on household budgets and leaves less in the pot for retirement saving. On the other hand, higher prices tend to go hand in hand with higher wages, which eventually filter through to the value of investment classes typically held in pensions. It can however drag some investments down in the short term.”
“For those close to retirement, there is a greater risk of a declining pension pot in the short term along with an increased cost of living. Inflation at 5.1% also makes taking a tax-free lump sum less desirable as the increased rate of inflation will halve your spending power in just 14 years.”
‘If the Bank of England were to increase interest rates today then this would likely help to stabilise the position for some.”
This change in inflation leaves UK households collectively needing to find an extra £39.6bn[2] a year to maintain their standard of living compared to 12 months ago, according to Canada Life. Each household will typically need to spend an extra £1,425 a year to maintain their standard of living compared to a year ago.
Andrew Tully, Technical Director at Canada Life said“The latest inflation numbers give us little hope for any financial festive cheer. We are all feeling the pinch and the reality is the average UK household will need to find over a thousand pounds extra next year to maintain current living standards. We can feel this in our back pockets as everything is costing us more as we battle to balance our household budgets. With inflation headwinds growing stronger, living standards will continue to fall.”
“The rising costs of living can disproportionately affect people with fixed incomes, including retirees who typically live off pension income. Building some form of protection against the ravages of inflation is important if people want to maintain their standard of living.”
“Very few people currently buy an inflation proofed income at retirement. Blending the benefits of drawdown with some guarantees through an annuity can create the flexibility for people to bank a guaranteed income to pay the bills while also leaving money invested to pay for life’s little luxuries and help protect against inflation.”