Both households and businesses are feeling the effects of inflation as it has reached 11.1% in the 12 months to October 2022. Optimistically, the rate is expected to fall from mid-2023.
How is it possible to avoid the most damaging effects?
Inflation is the increase in prices over a year and is calculated by the Office of National Statistics (ONS), which looks at hundreds of commonly purchased products. The ONS compares average prices over a year. So, if inflation is currently running at 11%, it means the price of goods and services is 11% higher than a year ago.
To keep up with the rate of inflation, your salary would need to increase by 11% after tax. Savings would need to earn an annual return of 11% after any tax for the money to retain its value.
To help with this, some employees are receiving a one-off bonus, rather than a pay rise, which is not always affordable for employers.
Self-employed businesses could increase their rates to help to counter the effects of inflation. This is perfectly acceptable, especially if you have not increased your rates for a while. Remember to communicate with your clients and make sure they know they are receiving the same high level of service – if not higher if you add new services to boost your offering.
Is it Possible to Avoid Inflation?
It is virtually impossible to do this, as prices everywhere for goods and services are rising. Take the time to shop around for the best possible deals for whatever service you are using, such as mobile phone contracts or energy.
Here are a few ideas of ways to reduce spending:
- Try to reduce non-essential spending. Perhaps purchase own-brands in shops and look out for offers. Some card providers offer cashback deals or discounts with certain retailers.
- Look at your direct debits and make sure each one is really necessary. Subscriptions to services you may no longer require are easy to forget about until they are due.
- Do you have a water meter? This ensures you only pay for the water you use and not a fixed rate.
- Look at your energy costs. This causes one of the most severe impacts of rising costs for businesses and households. A smart meter will help you to track energy use, but remember that Ofgem will help you if you are struggling to pay. Click here for more information (insert link https://www.ofgem.gov.uk/information-consumers/energy-advice-households/getting-help-if-you-cant-afford-your-energy-bills)
- Have you received all the benefits you are entitled too? Households can obtain advice here (insert link https://helpforhouseholds.campaign.gov.uk/help-with-your-bills/).
Help for businesses can be found here (insert link https://www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers?gclid=Cj0KCQiAgaGgBhC8ARIsAAAyLfEzkrEp7IZJw87blVayHpLGm3M6_bN2Gy9_mwc5N9fnGRIEnClT3GIaAm1TEALw_wcB#the-amount-your-bills-will-be-reduced)
- Mortgage interest rates are expected to rise in line with inflation, now at 4% compared with 0.1% in November 2021. This is fine if you are on a fixed rate mortgage, but tracker mortgages will rise and fall with the base rate.
When you re-mortgage, look around carefully to make sure you have the best deal and do not stay with your provider if good deals are not offered. You could save hundreds of pounds a month.
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All this is worrying and can be confusing. If you need to discuss your situation, please call Vincent & Co. on 01803 500 500 and arrange a confidential meeting.
We’re here to help you.