As Bank of England governor Andrew Bailey prepares to go before the Treasury Select Committee to discuss whether the UK is about to dip into a recession, economists have forecast the cost of living to hit another high this week
Inflation is expected to reach 9% this week, as the cost of living crisis continues to unfold across the UK.
Economists predict that inflation will jump to 9% on Wednesday, a fortnight after the Bank of England raised rates and warned the country could be heading for a recession.
Inflation is a figure used to explain how much the prices of everyday essentials have increased.
It tends to be referred to as ‘the rate of inflation’ or the ‘level of inflation’ and is always shown as a percentage.
For example, if you had £ 1 to spend roughly 20-years-ago, you would have been able to buy more with it then than you would today.
If the price of a bottle of milk is £ 1 and it rises by 5p, then milk inflation is 5%
Consumers experience inflation as a rise in prices, but economists refer to it as a decline in the purchasing power of a given currency because inflation means you can buy less with your money.
April’s inflation figures will be released on Wednesday, with forecasts pointing towards a significant increase on March’s 7% rate.
Chief economist at Panmure Gordon, Simon French, said he “wouldn’t at all be surprised” if the rate of inflation reaches 9% this week.
He said the latest figures will be influenced largely by the recent surge in household energy bills.
“There will be a big jump because the April price cap is captured within it,” he added.
The Bank of England has already warned inflation is heading for 10% – which will mean the consumer prices index will be at its highest level since the 1980s.
The Government has been criticized for failing to do more to help ease the cost of living crisis – and pressing ahead with deeply unpopular tax rises.
Business Secretary Kwasi Kwarteng said that there was “clearly” an issue with high levels of inflation but stopped short of criticizing Bank of England Governor Andrew Bailey.
Mr Bailey is due to face the Treasury Select Committee on Monday, as he’s quizzed on whether the country is about to enter a recession. A recession is defined as two consecutive quarters of declining GDP.
The Bank of England this month raised interest rates from 0.1% to a 13-year high of 1% in a bid to put a lid on spiralling prices. The bank’s aim is to keep inflation around the 2% mark.
How does inflation affect me?
If your salary hasn’t kept up with inflation – which is the case for most workers – you will find your household finances are squeezed.
That’s because as prices rise on food, energy and fuel, our earnings aren’t keeping up, and we start to struggle with money. This has triggered the recent cost of living crisis.
Rising inflation also erodes the value of your savings.
Let’s imagine you have £ 100 sitting in a zero-interest bank account. Over time, inflation will reduce the ‘real’ value of your £ 100. After 25 years, you’ll still have £ 100, but you’ll be able to buy significantly less with it than you could at the start.
If you’re saving for a long-term goal, like retirement, then it’s really important to factor in inflation.
You might think saving up £ 600,000 will set you up for a comfortable retirement but, in 20 years’ time, that £ 600,000 probably won’t go as far as it does now.
Over the last 40 years, inflation has averaged 3.8%, which means that unless your money has grown by at least 3.8% each year, its real value will have fallen.