Our personal finances took a hit during the first week of February. It became public knowledge that the energy price cap was increased, meaning many households could face a record £693 price hike.
As well as this, Chancellor Rishi Sunak confirmed that the National Insurance increase will be going ahead. The Governor of the Bank of England, Andrew Bailey, has warned that the rising cost of living and squeeze on living standards may not ease until 2023.
Meanwhile, inflation continues to rise. The inflation rate increase to 5.4% in December, up by 0.3% compared to November. This is the highest inflation figure we have seen since March 1992. In an attempt to control this, the Bank of England increased interest rates to 0.5%. Reports suggest that four members of the Monetary Policy Committee voted in favour of an increase to 0.75%.
We are likely to see interest rates rising for some time, especially while inflation is such an issue. This will inevitably lead to higher mortgage rates. Some of you will remember a time when mortgage rates were as high as 15%, but the younger generations will be feeling the squeeze for the first time. There is no escaping the inflationary pressures, and they will have an impact for home owners and those renting as well.
Rishi Sunak has also announced that the personal allowance for income tax and the higher rate threshold would be frozen until the 2025/26 tax year. When asked about this, he said it is a “fair way to help solve the problems we need to solve”.
This doesn’t sound significant but as wages are rising to try and keep pace with inflation, more employees will need to pay income tax and more employees will be taxed at the higher rate of 40%.
So to summarise the financial pressures – more tax, higher energy costs, rising inflation and an increase in national insurance. It is difficult to disagree with the Governor of the Bank of England. During these times, we are still required to save for retirement, ensure mortgage rates are competitive and have in place necessary protection policies.
All these factors demonstrate that financial planning has never been more important, and that applies to people of all ages. Those getting on the property ladder as well as those near retirement. If you need help with your finances, speak to one of our advisers today and book your free initial consultation. We are here to support you.