In April, due to the increase in energy needs and clothing costs, the annual UK inflation rate more than doubled — from 0.7% in March to 1.5%.
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Inflation, the rate at which the prices for goods and services increase, is a key measure of financial wellbeing. The higher inflation is, the less your money is worth, essentially. If wages don’t stay consistent with inflation, then purchasing power drops and living standards fall along with it.
But a little inflation can actually be a good thing.
People buy products sooner which in turn makes it easier for companies to raise wages, both of which will give the economy a boost. It’s because of this reason that the Bank of England has set an inflation target of 2%.
Consumer prices haven’t risen this quickly since the start of the pandemic in March 2020. According to the Office for National Statistics, when lockdown restrictions eased, inflation started to rise, an increase in oil prices that pushed up petrol prices certainly had an effect.
What’s expected next?
Economists are expecting inflation to keep rising as lockdown restrictions continue to ease and the economy reopens fully to allow people to spend the savings they built up during the pandemic. The vaccine rollout has restored some confidence in the UK public and they’re happy to spend their money after being unable to for the better part of a year.
Even though this particular rise had been predicted by economists, there are still concerns that inflation climbing rapidly at the same time the global economy is recovering from the pandemic might force central banks to increase interest rates, creating a knock-on effect on borrowing rates and the housing market.
If they do raise the rates, it will ultimately serve to help cool things down and help with recovery. But many expect the rise to be temporary and things to return to normal after the brief rise.
Plan your finances
It’s important to be prepared for a rise in inflation and how it might change your plans. If you’re uncertain how the increased inflation rate might affect your financial plan, we’re here to help. Get in touch today.
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