Cost of Living Crisis From Covid Striking Economy And What It could mean for you!

Along with shortages of everyday goods pushing up costs and the end of the furlough scheme this month – amid fears of job losses – experts warn a perfect storm will squeeze households hard.

According to the Organisation for Economic Co-operation and Development, this problem could go on well past winter.

It comes after former Brexit Secretary David Davis had warned: “From the point of view of what you might think of as the new Tory voter, the plumber, the ­bricklayer, the lorry driver, there’s going to ­be a cost-of-living crisis.”

But Boris Johnson last night buried his head in the sand and denied we will suffer a winter of discontent, despite him slashing Universal Credit and hiking National Insurance ­contributions, which will hit society’s poorest the hardest.

The OECD predicted inflation could rise to 3.1% next year, a 1.4 percentage point jump from what it forecast in May.

Johnson tried to blame the world’s economy for the recovery after the pandemic. However, the OECD said that UK inflation would rise faster than other advanced economies and will last longer. Many of the problems are specific to Britain.

Even Business ­Secretary Kwasi Kwarteng admitted there was a looming crisis here.

He said of next month’s UC cut and rising prices: “It’s a ­difficult situation, it could be a very difficult winter.” Shadow Chief Secretary to the Treasury Bridget ­Phillipson laid the blame squarely at the Government’s door. She said: “Working families face a sudden squeeze on living standards on a scale not seen for a generation.

“Incomes are coming down, prices are going up, especially energy prices, taxes are going up, rents are going up, childcare costs are going up, fuel costs are going up, rail fares are up.

“The people of Britain face this not simply by chance, but because of the choices made by Conservative governments, this year, last year, and in the 10 years before. It is not a tragic, ­unforeseeable series of unhappy accidents that brought us here. It is choices which this Government has made.”

Mr. Johnson said: “I think this is a short-term problem caused by the energy problems, the spikes in gas prices, and like many of the other supply issues we are seeing, including food, are caused by the world economy waking up after a long time in this suspended ­animation caused by Covid.”

Energy bills for around 15 million households will soar by at least 12% next month. Others will see even greater increases due to a rise in wholesale prices. Prices for a variety of products and services are rising due to higher shipping costs and a shortage of lorry drivers.

Food prices, which had been falling, are now on the rise.

And the cost of everything from building materials to secondhand cars have been driven up by ­shortages of one kind or another.

A National Insurance ­contributions rise of 1.25 percentage points next April to raise billions for health and social care will pile further pressure on households. It will cost £180 a year for those on £24,100, £255 for others earning £30,000 and £715 for a £67,100 wage.

The personal income tax allowance for income tax will be frozen through 2026.

Millions of older people missed out after the PM went back on another manifesto pledge by suspending the “triple lock” pledge that would have linked state pensions to earnings.

Tomorrow’s meeting of the Bank of England will be devoted to deciding whether to increase interest rates. A rise would result in huge borrowing costs for millions.

Here’s what the rising cost of living could mean for you

Mortgages

Borrowers have benefited from low-interest rates. And despite rising inflation, most experts don’t expect those rates to go up any time soon.

One of the Bank of England’s jobs is to keep inflation at around 2%.

One way is to raise the base rate. This can be used to impact wider borrowing costs.

Economists believe it will maintain the record-low 0.1% rate.

Paul Dales, of Capital Economics, said: “We suspect the Bank will hold off raising rates until 2023.”

Pensions

For those on the state pension, next April’s increase will be based on what inflation turns out to be this month.

It would have been higher if the Tories kept to their triple-lock promise, which would have seen it rise in line with average wages.

As the annual rise is limited to 5%, most retired people with private-sector defined-benefit pensions will not be affected.

The same goes for those who have a defined benefit pension. They will have to borrow more in order to keep up with the rising costs of living.

Prices in shops

Households have enjoyed a lengthy spell of deflation, with prices falling year on year.

This is beginning to change with the decrease in shop price inflation from 1.2% down to 0.8% as of August.

There are signs that food prices are on the rise year-on-year. Some non-food items like electrical goods have seen their prices rise due to shipping costs and shortages. These prices could rise further.

British Retail Consortium chief Helen Dickinson said: “Retailers may be forced to pass on some costs to their customers.”

Public finances

Higher inflation is bad news for the nation’s finances. The biggest factor is the impact on government borrowing costs.

Yesterday, figures from the Office for National Statistics showed how the tick-up in inflation added a hefty £2.9billion in interest payments last month.

When the nation’s debt mountain stands at an eye-watering £2.2trillion, any increase in borrowing costs caused by higher inflation in the months ahead is a headache that Chancellor Rishi Sunak could well do without.

Savers

Savers have long been the forgotten victims of rock-bottom interest rates.

Although savings rates have increased, it is almost impossible to find rates that are higher than inflation.

Hargreaves Lansdown’s research has shown that people are most likely to not switch savings accounts because they feel rates are too low.

Inflation will continue to rise, but interest rates won’t, so savers will have to pay more for their living expenses, but no more from their savings.

Wages

Office for National Statistics figures shows wages rose 8.8% in the three months to June, compared to the same time a year earlier.

Many workers were on furlough or working shorter hours last year.

XpertHR, however, found an average of 2% pay increases in the three months ending August.

Pertemps Network and CBI both found 24% expect to raise their pay above inflation, while 44% plan to increase it in line with rising costs of living.

Inflation and worker shortages will be used by employees to demand higher pay increases.

Money worries

Money worries are a “ticking timebomb” across offices, factories, and other workplaces, experts warn.

Four out of 10 employers believe that financial stress negatively affects productivity and motivation.

A survey by Scottish Widows found that more than half of workers now seek support from their employers for problems like debt. Six out of 10 HR managers said that staff is more willing to talk about mental health concerns with their manager.

Scottish Widows pensions expert Graeme Bold called on bosses to draw up “financial wellbeing” policies.