Inflation

*The time of writing this article was mid March and the information may have changed.*

The rate of inflation at the start of this year was 4% yet significantly higher than the target set by the Bank of England. Prices are not currently increasing as quickly as wages according to the latest data. After reaching its highest rate in forty years back in October 2022, the inflation rate has fallen yet lower inflation rates doesn't mean that prices are decreasing, as we all unfortunately see on a daily basis, but only that prices are increasing not as fast as they were.

At the very beginning of 2023, Rishi Sunak pledged to halve inflation. In the three month period beforehand, inflation was at 10.7% so he has met this pledge

One of the main reasons behind an increase in inflation is the escalating cost of general living. Essential and necessary items such as food, housing and transport have seen price hikes which put a strain on so many household budgets across the country. With wages struggling to keep up with rising prices, many families are finding it increasingly challenging to make ends meet and are facing difficulties they have never experienced before.

Energy prices have been rising which exacerbate the pressures already being faced. The soaring cost of gas and electricity has obviously led to much higher bills for both households and businesses which further squeeze the disposable incomes of consumers.

Supply chains have experienced major disruptions and this in turn has played its part in driving up prices. The global supply chain has been severely disrupted by several factors such as labour shortages, raw material shortages and issues with transport. These delays have affected the delivery of goods and further increased production costs which are then passed on to consumers in the form of higher prices.

The UK’s central bank is the Bank of England and they face a challenge in trying to navigate this environment of increased prices. While the Bank aims to maintain price stability and support economic growth, it has to also consider the impact of its financial policies and decisions on the dynamics of inflation. In response to rising inflation, the Bank may consider adjusting interest rates to cool down the economy and bring inflation under control and has indicated that inflation will fall during the rest of 2024. It aims to keep inflation at 2% but as it is now much higher than this, interest rates were increased accordingly, making borrowing more expensive and more difficult to obtain.

The surge in inflation comes at a time when the UK economy has still not fully recovered from the effects of the pandemic which was only a few years ago. Although economic activity rebounded strongly in many areas, lingering uncertainties remain and it has certainly made a long lasting impact.

As some prices continue to rise while others remain stable, the need for effective measures to address the pressure felt by so many, becomes more intense. Balancing the need for economic growth with bringing prices under control will be crucial in navigating the uncertain economic landscape which lies ahead. Many predict that the worst financial hardships are now over and that it can only get better as the year progresses and as we head into the right direction, we will still have to wait and see.