Cost of living crisis: Why we need financial experts now more than ever
This week is Talk Money Week, coming at a poignant time in the UK where interest rates have hiked from 0.75% to 3%, and the country is in the middle of a cost of living crisis.
But what does a cost of living crisis mean and how did we get here?
There have been four key increases over the year:
- Fuel prices shot up in February and reached record highs in July, with the average cost of petrol reaching 191.53 pence-per-litre and diesel reaching 199.05p.
- In April the energy cap increased by 54%, leading to soaring gas and electricity bills for UK households.
- The government’s mini budget announcement in September led to mortgage rates sky-rocketing to the highest since the 2008 global financial crash.
- Food costs have also increased over the course of the year, with prices in September 2022 at 14.5% more than in September 2021.
We were warned about the news of the energy price cap being raised back in 2021, but many didn’t realise just how much this and other rising costs would affect their household.
Senior Lecturer in Finance at the University of Brighton, Dr Lawrence Haar, has been warning that the energy price cap is like holding water back in a dam for years.
“By having a major increase, all that has happened is we have put through the price that we eventually would have happened. But we would have got here in smaller increments and in a less distressing manner.
“Instead, we have gotten into this situation by the way we put a price cap on top of the market and then waited for the pressure to really build before releasing the cap.”
Lawrence says the way to relieve some of the pressure on household bills is to change the way we support renewable energy in the UK.
“The way we support renewable energy is not fair to retail consumers and shockingly falls on lower income households. They spend more on energy than middle class or higher income households, and are more likely to be living in rented accommodation where they can’t put solar panels on their roofs.
“Removing the green support for investment in renewable energy needs to be changed, moving the burden from consumers to investors.”
A new price freeze on energy costs has been introduced but as one cost stabilises (at least for a few years), interest and mortgage rates are rocketing.
For UK households with a variable mortgage rate, this means monthly repayments will increase. For those on fixed-rate mortgages, interest rates are likely to be much higher when it comes to remortgaging.
The average new two-year fixed-rate mortgage increased from 4.74% on 23 September to 6.65% on 20 October. A new cabinet and some policy u-turns may bring some stabilisation to the market but forecasts are saying that low mortgage rates are a thing of the past.
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