Soaring inflation could push over 55s onto the breadline

36% of over 55s are worried that the financial pinch will hit them shortly as prices continue to rise.
soaring inflation

Research by KIS Finance has revealed that as a direct result of the soaring inflation, 57% of Brits are either already struggling financially, or expect to do so in the very near future. However, with further prices rises on the way, with everything from fuel to food costs increasing on an almost daily basis, the situation looks set to get even worse.

With inflation running at 6.2%, its highest level in almost 30 years, the Chancellor’s announcement today to try to ease the burden, is unlikely to go far enough for millions of households across the UK.

The decision to reduce fuel duty by 5p will barely touch the soaring fuel prices of recent weeks. Similarly, the Chancellor’s announcement that the VAT rate on energy saving materials, such as solar panels, will be reduced to 0%, won’t have a direct and immediate impact in people’s pockets. Whilst his decision to double the support to vulnerable households via local authority funding is a positive step, this is still going to take time to reach those who are in need of urgent support right now.

KIS Finance’s research found:

  • 27% are already struggling financially as direct result of soaring inflation.
  • 30% anticipate financial problems in the very near future as the impact of rising prices bites.
  • 35.5% of 18 – 24 year olds report they are already financially struggling.
  • 36% of over 55s are worried that the financial pinch will hit them shortly as prices continue to rise.
  • The South East is the area most affected to date, with 30% already struggling financially.
  • 22% of 18 – 34 year olds have had to take an additional job since the pandemic just to make ends meet.

Millions struggle to keep a roof over their head

Coming on top of the recent decision by the Bank of England to increase interest rates to 0.75%, (the third increase over 3 consecutive months) many are also struggling to pay their mortgages and finance agreements. This latest increase has bought interest rates back to where they were before the pandemic, and some are predicting that we may even see a further increase up to 1% by May.

Those on tracker and variable rate mortgages are already feeling the pinch, and even those on fixed rates will be hit with additional costs when they come to renew their current deal. Data from Moneyfacts has revealed that there are now 518 fewer mortgage products available than last month. The average shelf life of a mortgage product has also reduced from 42 days in February to just 28 days, meaning that homeowners and buyers have to move fast to secure an affordable deal.

The UK hit by a “perfect storm”

In many ways it’s the perfect storm. Average electric and gas bills are expected to hit £2000 a year when the Government’s price cap is raised next month, at the same time that food prices have seen the highest rise in nearly a decade.

Motorists are facing soaring petrol prices due to the rise in the cost of crude oil, and the increase in National Insurance from April will put yet more pressure on the public’s already stretched budgets.

In addition, the war in Ukraine is already having an impact on the cost of fuel and other items, which is intensifying the cost of living crisis here in the UK.

The impact of events in Ukraine is hitting the global food supply chains and whilst we don’t directly import many foodstuffs from Russia, shortages elsewhere may impact on other countries’ ability to export food items to the UK.

Large quantities of fertiliser are imported into the UK from Russia and rising costs will certainly have an impact on the cost of farming here at home. As the world’s biggest exporter of synthetic fertiliser, Russia in responsible for more than a fifth of the supply of urea, which is a key fertiliser used in the UK. Increases like this in production costs will certainly further impact on food prices here at home.

We’re also likely to see further price increases across a range of items which rely on the supply of various metals as a key component. With Russia as a leading supplier of metals across the globe, the impact of shortages will hit numerous industries, from canned foods to car production. Some car manufactures have already suspended production in Russia. With Toyota and Volkswagen operating large scale manufacturing hubs there, the impact is likely to be felt in the lack of availability of new cars back here in the UK.

Before the invasion experts predicted that inflation would peak at 7.25% but the impact of the crisis means that many are now anticipating that we could see rates exceeding 8% in the coming months.

Over a quarter of people are already struggling financially

As the impact of soaring inflation starts to really bite, over a quarter of those surveyed report that they are struggling to make ends meet. With real wages in the UK predicted to be lower by 2026 than they were in 2008, this worrying trend looks set to continue for some time.

Whilst some inflation is needed to keep the economy running smoothly, the current rate is well in excess of the ideal level of 2% that the Bank of England aims to maintain. With potential increases to around 8% being predicted, many millions are going to struggle to get by.

With the Bank of England increasing interest rates to 0.75%, the second rise in 3 months, this will put further pressure on stretched household budgets, as mortgage and loan repayments increase.

70% have seen wages stagnate or fall

Whilst inflation is normally linked to wage increases and a growing economy, research by KIS has found that only 30% of people reported a rise in pay since before the pandemic, whilst 70% have seen their wages either stagnate or fall.

Therefore it’s not been an increase in non-essential spending that has driven the current rise in the cost of living, and the announcement that interest rates are rising will do little to help reduce these inflationary pressures. Instead higher interest rates will add an additional cost burden onto those with variable rate mortgages at a time when they can least afford it.

A third fear that the worst is still to come

Nearly a third of people reported genuine concern that rising prices and the increasing cost of living would have a negative impact on their lives in the very near future. Whilst some have been able to make use of savings built up over lock down to help meet increasing costs, this temporary buffer won’t last for long and the impact of a permanently higher cost of living is a real worry for many.

As energy prices soar, pushing up both the direct cost for travel, heating and powering our homes, and the indirect cost of other goods and services, the impact on household budgets is one that few can ignore.

Young people hit the hardest by rising costs

Over 35% of those aged 18 to 24 are reporting that they are already struggling to get by financially. Research by the think tank Demos, has found that young people are currently the hardest hit and face the ‘greatest uphill battle’ to make ends meet. With potentially higher levels of debt and lower incomes, it’s this generation that may find it the hardest to take on additional expenses as cost rise.

As their expenditure increases on day to day living, their ability to save is likely to be hard hit. For many this will mean that the dream of saving a deposit to get onto the property ladder will now be even less of a reality than before.

Costs rise as real salaries fall

24% of those aged between 18 and 34 have reported a fall in their wages compared to before the pandemic. With many younger people employed in the sectors greatest hit over the last 2 years, including hospitality and retail, it’s not surprising that they have seen their incomes fall, often due to a reduction in their hours.

Even with the rise in the National Minimum Wage to £9.50 from April, (an increase of 6.6% from current rates) many will still struggle to get by, as inflation wipes out any increase in their salary in real terms. For those already paid above the NMW, even where employers are offering salary increases, for most it won’t be anywhere near enough to counter the rising cost of living.

22% of young people forced to take additional jobs

As many of those aged 18 to 24 struggle to make ends meet, nearly a quarter have had to take an additional job to get by. Whilst people may choose to have a second job to supplement their income, many young people are now finding that they have no alternative if they are to manage financially.

When asked why they took on an additional role, some responded that they were worried about job security and took on other jobs in case their primary role was at risk in the future. Whilst this may boost their finances in the short term, the additional pressure of longer hours and juggling multiple jobs may well take its toll on the well-being of those that find themselves in this situation.

36% of over 55s are worried that things are going to get a lot worse

Whilst younger people are already feeling the impact of the rising cost of living, those aged over 55 are the most worried about the impact on their finances in the coming months and anticipate finding themselves in difficulties soon. Whilst they may have higher levels of savings, anyone who is thinking about retirement in the next few years may now be reconsidering whether they can afford to do so.

South East hardest hit by soaring inflation

30% of those in the South East report already being in financial difficulties as a direct result of rising costs. Whilst average wages may be higher, increases in living costs are being acutely felt by those living there. With interest rates now rising again, those with large mortgages will feel the pinch even more as monthly repayments increase alongside other rising costs.

Explaining the study findings, Holly Andrews, MD at KIS Finance said:

“Whilst the Chancellor’s announcement today will bring some elements of relief, it’s unlikely to change the reality for millions of households who are struggling to get by on a daily basis. A 5p reduction on fuel tax is virtually meaningless, as petrol prices continue to rise to unprecedented levels.

The increase in interest rates to 0.75% will raise the cost of borrowing for millions on tracker and variable rate mortgages. Even those on fixed rates will feel the squeeze when they have to renew, as there are far fewer products now available on market to choose from. The best deals have gone!

Shortages in the housing market are forcing prices up, at the same time that rents are at some of their highest rates ever. Both these factors are making it even harder for first time buyers to take that step onto the property ladder.

With the cost of borrowing increasing alongside the rising cost of living, those saving for a deposit will find this even more challenging. Similarly those applying for a mortgage may find it more difficult to meet income requirements, as disposable income is hit by the rising cost of essentials.

With the potential for a further increase in interest rates this year and further inflationary price rises expected, the situation doesn’t look like it will ease for home buyers anytime soon.”

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Tags: , , , Last modified: April 8, 2022

Written by 4:51 pm News & Views