"Rising cost trends are staggering"
Costs all across the board are rising in the UK - whether that is energy bills, fuel, or food, expenditures which are unavoidable are increasing.
However, salaries have not risen in line with these costs and therefore there will come a breaking point when many can no longer afford to pay for the necessities. As such, the possibility of a recession has started to surface as many businesses prepare for a double hit of slowing consumer demand and rapidly rising costs from inflation on their own companies.
“The rising cost trends we are seeing across multiple areas is staggering,” said Jason Berry (pictured), group sales and marketing director of Crystal Specialist Finance.
According to energy regulator Ofgem, energy bills are expected to increase 14 times faster than wages over the course of 2022, with prices set to rise again in October, as well as January 2023. Berry went on to say that the RAC reported last week that it now costs £98 to fill up the average car with petrol, and more than £100 with diesel.
“On top of this, the Guardian newspaper stated last weekend that Ofgem, which sets the maximum amount a utility company can charge an average customer in the UK per year, is likely to exceed £3,300 from October 2022, an exponential increase on the current already record amount of £1,971,” he said.
With Bank of England interest rates also rising and set to increase further in the coming months, Berry explained that it really is a terrible situation for all UK households.
“These rises are sure to create a winter of discontent and the worst cost-of-living crisis seen in my lifetime is now looking inevitable,” he added.
Read more: “The cost-of-living crisis is the biggest squeeze on living standards in decades”
“Please be assured I am not trying to be a harbinger of doom, but with inflation at a 40-year high there are certainly a number of actions which are required from the government, lenders and our broker community.”
What can be done to tackle these costs?
Looking to the government, Berry said that nearly half of all fuel cost ends up in the treasury coffers.
“By decreasing fuel duty from the current 30% level and/or reducing the amount of VAT charged on fuel, some savings could easily be passed on, but changes must be policed effectively so garage forecourts are forced to pass on the monetary benefit to car owners,” he said.
Separately, Berry believes reducing the Ofgem energy cap by £750 per household would be beneficial.
Moving on to what lenders could offer, Berry outlined that while the money markets’ swap rates are volatile, he believes bringing some fair value for longer term three-, five- and 10-year rates is critical in today’s marketplace. Additionally, he explained that the practice of pulling rates with limited notice should be restrained.
“I understand the potential commercial impact this can occasionally cause but sometimes lenders just need to take a hit and offer some longer windows,” Berry said. As a result, Berry added that the broader customer service and client outcome benefit will reap rewards in the future.
Read more: Cost of living inflation and mortgages – what is the impact?
Finally turning to what brokers and advisers can do to assist the market during this difficult time financially, Berry said they should be proactive in reconnecting with their clients.
“Many households will be ignorant or simply burying their heads in the sand. These future cost-of-living increases are imminent and need to be communicated with urgency so effective budgetary plans can be made,” Berry said.
Other factors, including EPC changes, Berry explained, will also affect budgets - so he believes consumers, and landlords, need educating in order to make informed and savvy decisions.
“The next two years are set to be volatile, but sensible government subsidies are needed and will hopefully arrive in one guise or another,” Berry said.
Separately, he added that the provision of action-provoking financial advice has to ensure that clients are able to make well-judged and sound long term financial decisions.
