Today saw not only the outlining of the Government's stance on leaving the EU, but also a rise in inflation that was larger than predicted. But what does this mean for the pound in your pocket?
It was announced today by the Office for National Statistics that the Consumer Prices Index (CPI), a long-held measure of inflation, rose from 1.2% to 1.6% in December, while many economists had predicted that it would rise to a lesser degree. However, this appears to be in line with the prediction made by the Office of Budget Responsibility as part of the Autumn Statement that CPI would rise to 2.0% in early 2017. At the very least, this larger-than-expected rise seems to indicate that it won't be going down again anytime soon.
What this means, as you may have already noticed, is that the price of fuel, air fare, food and clothing went up in December, and that, unfortunately, this trend is likely to continue. Indeed, we have already seen inflation beating out the vast majority of savings rates currently on the market, with only a handful able to offer a measurable return.
In terms of fuel, statistics from the Department for Business, Energy & Industrial Strategy reveal that weekly road fuel prices did go up last year (prices at the pump for unleaded petrol went up from 102 p/litre at the start of 2016 to 117 p/litre at the start of this year), but they are still down from the prices recorded in 2013. However, if inflation continues to rise, the price of petrol is likely to follow suit, so we might yet reach 2013 price levels.
In terms of air fare, it is unclear whether the rise in airplane tickets in December was due to the usual seasonal variations, inflation or (most likely) a bit of both, but either way January still seems to be a good month to grab that bargain holiday in the sun – just make sure you have a big enough budget for spending in other currencies!
Overall, while prices have indeed risen, it could be a lot worse. Indeed, the rate of inflation is still quite low in a historical context and the value of the pound didn't fluctuate too wildly today, despite Prime Minister May's speech outlining plans for a 'hard' Brexit, whereby the UK could potentially lose its biggest trading partner. Shoppers therefore shouldn't feel the strain on their wallets too much, at least not yet, but they should prepare for household spending to become squeezed by making sure their finances are in order and saving money wherever possible.
For instance, now would be a great time to switch to an interest-paying current account, to look for a better energy rate, to start a regular savings habit, and of course to pay off any debt, if possible, before the repayments become too much of a strain on your budget.
The inflation increase has sparked speculation as to whether the Bank of England will increase the base rate soon, with experts divided over the issue. What this means for people looking to take out a mortgage, or remortgage, is that they should take advantage of the record low rates while they can.
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