With inflation expecting to increase in early 2017 how much will this affect you? The Bank of England have predicted that the inflation rate will almost triple in the new year from 1% up to 2.7%. The dramatic increase is mainly due to the drop in the value of the pound which means the cost of imported goods are far more expensive. This means that the cost of living will increase as many day to day essentials will go up in price. Inflation won’t affect everything equally; some things will rise higher than others. Overall, inflation reduces your standard of living.
In December the UK saw the biggest rise in clothing prices in six years which helped to inflation up to 1.2% in November from 0.9% in October. November's Consumer Prices Index (CPI) was the highest since October 2014, when it stood at 1.3%. The Office for National Statistics (ONS) said increases in the price of petrol were also responsible for the slightly higher than expected rise.
As inflation rises, the cost of many things will rise too. The cost of fuel has already hit its highest level for over a year. This is due to the weakening pound as it currently reached a two and a half year low against the dollar. Crude oil and other substances that are needed to make fuel are traded in dollars so makes it much more expensive for British companies when they come to buy these commodities.
Inflation increase will also affect the prices of selected products in supermarkets as it will cost more to buy certain things. Products such as ice cream, mayonnaise and marmite will see a big increase as manufactures see sharp rises in the cost of raw materials, components and energy. Unless your income increases at a higher rate than general inflation you are going to be affected by this.
Housing prices are expected to be affected by this increase in inflation and is expected to drive house prices up which could lead to many potential buyers being priced out of buying a property. This can be a negative for some people but a positive for others. Obviously if you are looking to buy a house the increase in value of properties is not a good thing for you but if you own a property and are looking to sell it works in your favour as the value will more than likely have increased. As house prices increase and become unaffordable more people look to the short term option of renting so this drives up the price of rental costs as there is more demand.
Of course it is difficult to accurately forecast how inflation and the economy in general will affect house prices. Brexit can also have a significant affect with confidence at a low ebb.
Where inflation rises this can mean lower household disposable income and therefore more slipping in to problems paying mortgages. This would mean downward pressure on house prices with more home owners defaulting on mortgage payments. House repossessions would increase meaning more housing stock available but at lowering prices. This is of course the opposite scenario of that described above.
One of the biggest problems with the housing market and the economy is people’s confidence or lack of it. Confidence helps the economy in that people feel secure in their jobs and lives in general and so spend more, fuelling the economy further. Lack of confidence has the opposite effect.
As it is difficult the forecast what will happen post Brexit, confidence and therefore the economy will suffer and contract. As inflation is also likely to rise this would mean a double whammy on those already struggling to meet their monthly financial obligations.
If you hold fixed bonds, which are fixed income assets that pay the same amount every year, you will be affected by inflation as these will become less valuable because the cost of everyday living will go up. Due to this many people will probably try to sell them and this will depreciate their value even further.
Inflation also has a bad effect on retirement plans. This is because your target has to keep getting higher and higher to pay for the same quality of life. For example, next year retired people will still get the same amount of money from their pension each month but due to the inflation increase they will have to spend more money on everyday essentials such as; food, fuel, gas and electricity bills so you will come out with less disposable income this year.
If you are affected by any of this, here at X-Debt
, we can help ease your debt with an IVA
. An IVA is an arrangement whereby an Insolvency Practitioner will negotiate with your creditors on your behalf in order to reduce your monthly payments on unsecured debt such as personal loans, credit cards etc. to a more manageable level. An IVA seeks to protect a family home should this be owned by the debtor so there is reduced worry over the family home being repossessed.
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An IVA will generally stretch over a time period of 5 years and at this time any outstanding debt will be legally written off. An IVA will also take into account essentials such as, mortgage or rent, food, household bills, allowances for motor expenses etc.