The latest figures from the Office for National Statistics confirm that inflation in the 12 months to May reached 9.1%. This marks another 40-year high following April’s record-breaking 9%.
The Bank of England (BoE) expects inflation to peak at around 11% later in the year and not return to its own 2% target until 2024.
As the price of goods rises, and household fuel bills soar, millions in the UK will find themselves struggling financially as disposable incomes are hit. In fact, FTAdviser reports that rising inflation has already wiped out more than £2 billion, with the least affluent households seeing their discretionary income fall by around 12%.
What next for the UK’s rising cost of living?
Rising inflation disproportionately affects the least affluent
The FTAdviser report confirms that the UK’s least affluent households became £59 a month worse off in April, marking a 12.3% decrease in disposable income.
The most affluent households had £61 less to spend each month, but this equated to a fall of just 1.4% in their overall disposable income.
Rising inflation is disproportionately affecting low-income households.
Inflation rate per household (April 2022):
Source: FTAdviser (Retail Economics-HyperJar Cost of Living Tracker, April 2022)
The Resolution Foundation, as reported by the Guardian, confirmed back in March that 1.3 million people will fall into absolute poverty next year. This includes half a million children and takes the total number to 12.5 million across the UK.
The UK could be on track for a recession in 2023
Inflation has been rising since the UK emerged from coronavirus lockdown. The situation has been exacerbated by supply chain issues, lockdowns in China resulting from its zero-Covid policy, and more recently by Russia’s invasion of Ukraine.
David Malpass, the president of the World Bank, recently confirmed that “the risk of stagflation [is] hammering growth. For many countries, a recession will be hard to avoid”.
Global markets are currently proving this assessment correct.
The S&P 500 is down 20% from its January peak, its worst half-year result since 1970. The Dow Jones and Nasdaq are firmly experiencing bear markets too.
In the UK, the FTSE 100 has dropped only 1.98% for the first half of 2022. But experts are warning of a sharp slowing of economic growth. This decreasing momentum will lead to a significant risk of a recession within the next 12 months.
With the BoE predicting an inflation peak of 11% around October 2022, the cost of living is set to continue to rise.
Financial planning can help you to keep on track
In June, we looked at 3 compelling reasons to factor inflation into your retirement planning and this remains crucial.
So, too, does staying focused on your long-term goals. Your financial plan is based on a holistic view of your circumstances and incorporates sophisticated cashflow modelling tools.
At Globe IFA, we understand that true security comes with the knowledge that your financial plan can adapt to change, be that personal, economic, or societal.
We are here to make sure that your plan continues to support you on the journey to your financial goals and we can use our Globe Wealth Management Service to help do this.
Designed to help you navigate your financial future with confidence, you’ll receive annual reviews, giving you the confidence that your dreams remain on track.
Get in touch
With the war in Ukraine set to continue and the rising cost of living likely to influence your household budget over the next few years, keeping on top of your finances is vital.
At Globe IFA, we can help you to understand the impact of changing global economies and adapt your plan accordingly.
If you have any concerns about the effect of rising inflation on your financial plans, please get in touch. Email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
