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A (Brief) Guide to UK Inflation 

A (Brief) Guide to UK Inflation 

Your (Brief) Guide to UK Inflation

Inflation is an economic phenomenon that affects territories across the globe. In basic terms, it is a natural or forced price rise – which can take place across different industries or even on a national scale. 

In recent times, people in the UK have witnessed new inflation highs as a result of economic downturn. This crucially means that everyday living costs are increasing, without there necessarily being a safety net of higher wages to help soften the blow. 

Inflation comes and goes – but given the fragile economic climate as a result of the COVID-19 pandemic, Brexit, and the Ukraine-Russia conflict, it’s important to know what this phenomenon means for your own finances in the event of future spikes. 

What Exactly Is Inflation?

Generally speaking, inflation refers to price hiking – which can affect goods in shops and stores, energy prices, and transit costs. For example, fuel in recent times hit a never-before-seen inflation rate, costing motorists nearly twice as much as they may have once expected when filling up at petrol stations.  

A further key example is that of energy rates. In 2022, energy watchdogs warned homeowners that they could expect larger bills than before as a result of a ‘perfect storm’ of inflation. 

As a result of inflation spikes, people cannot buy as many goods or from specific services as they once could, leading to a downfall in the purchasing value of their money. A historical example of inflation drastically impacting a national economy is that of Germany post World War I, where the country’s Deutschmark famously fell in value as a result of keeping up to reparations.


a youing guy working out how inflation impacts him


How Might UK Inflation Affect Me?

As mentioned, inflation can come and go. However, huge economic disturbance in the past decade has meant everyday people have needed to dig deeper to pay for everyday shopping and services. 

During a period of inflation, you will likely notice an increase in prices at your local supermarket. The cost of a weekly shop has become much more expensive than just a few years ago, causing many to significantly change their dietary habits, favourite brands, if not look for higher-paying jobs – and even dip into savings in dire circumstances. 

As mentioned, inflation can also impact transport as a result of rising fuel costs. This means everyday travel – such as for school and work – may get interrupted, and may even increase public transport fares to help offset the fuel demand. 

An increase in interest rates via inflation can also affect rising mortgage payments, applying more pressure to homeowners who may already struggle to repay monthly demands. 

As seen in early 2022, the home and commercial energy markets have seen the biggest shockwaves from UK inflation hikes. General household bills are said to have increased by 54% back in April 2022. 

This all means that, crucially, there needs to be some give or adaptation to cope with rising costs. While general wages are said to have increased during these inflation periods, they have not necessarily scaled up enough to match the pressure displaced by rising costs. 

Therefore, people have had to adjust to the new prices more independently. This has led to an increase in shoppers taking to cheaper supermarkets, choosing smaller weekly shops, and reducing their travel and home energy expenditure. During a period of high inflation, it is certainly a good time to take stock of how much power we use, and whether there are any extravagances we can cut back on. 

What Causes Inflation in the UK?

A variety of different crises can trigger inflation in the UK. At the start of the New 20s, the British economy had to adapt to new pressures – some forecasted, others not. The main trio of inflation impactors likely to reverberate for years to come is, for example, COVID-19, Brexit, and the Ukraine-Russia conflict. But why, out of all of these points, has the war in Ukraine affected our prices in the UK?  

Take gas, for instance. Russia is the second biggest crude oil exporter in the world, just behind Saudi Arabia. When war broke out between Russia and Ukraine in early 2022, the production and transport of said crude oil to European countries was grossly affected, thus leading the gas prices in the UK to rise. It has meant that suppliers have had to find new routes for distribution. Economic sanctions on Russia during the period have led to many supply chains having to find new resources altogether – all causing greater expense. 

Similarly, an increase in food costs in recent times has also partly been attributed to the Ukraine war – it has affected the global production and supply of grain, making it far more difficult to produce everyday supermarket foods. 

The rise in VAT in recent times, too, is an example of an inflation trigger in the UK. During the early days of the COVID-19 pandemic, the government reduced VAT in specific industries (notably tourism and hospitality, which took massive hits due to the lack of mobility during lockdowns) to encourage people to get back out into society and contribute to the economy. 

However, since the world has returned to what’s referred to as a ‘post-pandemic’ state, the government reinstated the 20% VAT rate on the prices within these industries, thus automatically leading to an increase in prices.  

The UK’s GDP has also suffered compared to other G20 countries, with new legislation tied to an untangling from the European Union likely to have created further pressure. 

a graph showing inflation fluctuations

How Can I Survive a Period of Inflation in the UK?

Unfortunately, we all have to be shrewder and more money-conscious during times of high inflation. Global crises in recent years may have triggered unprecedented cost increases, but there will always be some external triggers that lay outside of our individual control. 

Therefore, it’s highly important to work to a budget – and to ask for support from a financial advisor to help you make the most of your income, and savings, during periods of high uncertainty. 

If inflation is impacting your monthly spends and you need a top-up quickly, LoanBird has access to multiple direct loan lenders that’ll probably be able to help. Our smart search application form will retrieve a decision from our lenders for you within a few minutes of applying.

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