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August 17, 2022

Inflation hits another high in the UK, so what comes next?

By Patrick Brusnahan

According to the ONS, inflation in the UK has hit 10.1%, the first time it has reached double digits since the 1980s. The firm also stated that this was mainly due to food and non-alcoholic drinks during this cost-of-living crisis. Patrick Brusnahan asks the experts on what people and companies can do to relieve pressure

The Bank of England states that inflation could reach as high as 13% with energy, petrol and diesel also contributing to inflation spikes. Is there anything that can be done?

Richard Eagling, personal finance expert, NerdWallet

Today’s inflation figures paint a bleak picture for millions of households across the UK, who will see their financial wellbeing further squeezed.

Everyone will be impacted by the latest jump, but it will affect people in very different ways depending on their financial circumstances, commitments and lifestyles. Ultimately, each household or individual should do all they can to take control of their finances, make sound decisions on how they are managing their money, and find the best possible methods of dealing with the cost-of-living crisis.

Price comparison sites could offer some solutions, allowing households to compare prices for a variety of necessities, from groceries to energy providers. For those who are struggling, it is important to remember that free support is available from debt charities such as StepChange and Citizen’s Advice.

Atul Bhakta, CEO, One World Express

Businesses have been forced to shoulder the weight of many tough decisions in recent years. Now they are faced with a choice between passing price rises onto customers or trying to protect customers and letting their own finances suffer.

In fact, recent research by One World Express found that more than a quarter (28%) of business leaders fear their organisation will not last the year. Clearly, strong leadership is needed from the government. Businesses need clarity on and confidence in the path forward, so they can respond effectively to short-term headwinds.

For instance, picking up the pace on striking new trade deals will help businesses diversify their operations through new opportunity markets overseas; while contributing to contracting the UK’s trade deficit and strengthening the pound.

Naturally, this is not an issue that can be resolved overnight – all of us will feel the pinch to some degree. Today’s figures underline the importance of providing certainty to businesses for today, so they can step more confidently into tomorrow.

Andrew Megson, executive chairman, My Pension Expert

The power vacuum at the top of the UK’s political hierarchy will only add to the sense of unease as, week by week, inflation climbs higher and higher. This is a particular issue for retirees, for whom there is a very real risk that they will need to reverse their retirement decision and re-enter work.

In fact, millions of over 60s have already ‘unretired’ in 2022. Meanwhile, hard-earned money sat in some pension pots will be losing value in real terms as prices around us rise so sharply. In many cases, this means retirees’ savings will not sustain the lifestyle they had planned, or at least not for as long as they intended.

Concrete plans to tackle inflation and support retirees are needed, and fast. The Conservative leadership contest is an unwelcome distraction from this, but hopefully once it is settled, a strategy can be implemented. For one, I would like to see ministers work closely with regulatory bodies to ensure retirees know where to access affordable independent financial advice, so they can better understand their financial situation, and make any necessary adjustments to their retirement strategy. Without proper support structures, we could see ‘unretirement’ become increasingly common across the UK in the months to come.

Alastair Douglas, CEO, TotallyMoney

There seems to be no light at the end of the tunnel of the spiralling fuel, food and energy prices. For many, there is simply nowhere to turn.

Financial fragility has hit millions and this is likely to worsen over the coming months. As we inevitably head into a recession, it’s vital the government takes action to cushion the hardship faced by many.

Firms have a duty to act responsibly to help consumers find solutions which can help them move their finances forward. Accessing credit might be the right solution for one person, but not for another. We need data to be open and accessible to individuals so they can take control of their own personal financial information and act accordingly. Otherwise they risk staying in the dark and falling into further difficulty.

Daniele Antonucci, chief economist & macro strategist, Quintet Private Bank

Today’s UK inflation print of 10.1% in July is the first double-digit annual increase in over four decades. This is an upside surprise relative to consensus expectations and a further rise compared to the 9.4% rate of the previous month.

One of the key drivers of the latest rise is higher food prices, though the report shows that price increases have broadened from high energy prices to other goods and services across the economy at large.

This highlights the difficult growth versus inflation trade-off the Bank of England is facing. To bring inflation down, it will have to raise rates aggressively. We expect a second 50 basis-point rate increase to 2.25% in September.

This may cause the economy to enter recession. Our conviction on euro area and UK recession has increased recently and is now our base case as the higher costs squeeze incomes and negatively impact confidence. We expect the UK economy to contract outright from later this year.

With the ongoing Conservative leadership contest to select the next prime minister in a few weeks, today’s inflation figures are also likely to grab the headlines and draw extra attention to declining living standards for households across the UK.

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