Inflation Eases, but Financial Struggles Remain
Rising living costs, driven by soaring food and energy prices, have burdened many UK households. Efforts to control inflation through higher interest rates have added to the challenges faced by mortgage holders, renters, and businesses.
While wage increases are starting to catch up with living costs and interest rates have temporarily stabilized, not everyone will experience immediate financial relief.
Job Concerns and Wages Employers have raised pay to attract and retain staff, but over 200,000 jobs were lost between May and July due to increased business pressure from higher interest rates. Unemployment is expected to rise further, with a time lag between rate changes and hiring decisions.
Persistent Food Inflation Food prices remain resistant to inflation decreases, although the pace of increase is expected to slow. Cheaper food prices may not return as businesses aim to restore profit margins affected by higher costs.
The Stealth Tax Income tax thresholds have not kept up with inflation since 2021, resulting in over two million new income taxpayers and 1.3 million entering the higher tax bracket. This trend is set to continue until 2028, leading to more taxpayers and higher tax bills.
Considering tax changes and rising prices, the Resolution Foundation predicts a 4% decrease in the income of the typical working-age household by 2024 compared to 2021, with no improvement until 2025.
Borrowing Costs and Housing Rising interest rates have hit mortgage holders hard, with many facing significant monthly repayment increases. About 400,000 borrowers are on fixed-rate deals expiring this year, and 1.6 million more face expirations next year, potentially resulting in higher interest rates and repayments.
Economists anticipate a potential 5% decrease in house prices in 2024 due to previous rate hikes, but high mortgage rates continue to challenge homebuyers.
As financial pressures persist, consumer spending, a crucial part of the UK economy, may be affected. Concerns about future economic growth are growing, and voters may look to politicians for solutions as a general election approaches.
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