Millennials and Gen Z – Facing Up to Rising Inflation

Posted By: Bluestone Credit Management

Posted: 04th April 2022

 

UK inflation hit a thirty year high in February with the Consumer Price Index (CPI) hitting 6.2% in the 12 months to February. Primary drivers of the rise are fuel, energy and food costs surged. Nor are things set to improve anytime soon, the Bank of England has warned inflation may reach 8% and possibly higher, in the coming months.

With inflation meaning the pound in our pocket will buy less than a year ago, the Bank of England has increased the Bank Rate (sometimes called the ‘Bank of England base rate’ or even just ‘the interest rate’) for the third time in four months to 0.75%.

For the millennial and Gen Z generations, rapidly rising inflation, its impact on interest rates and the cost of living, will be something the vast majority will have never experienced in their working lives. For all too many it will be painful and it will necessitate an uncomfortable level of additional budgetary control.

Increasing interest rates is the Bank of England’s primary tool to address rising inflation. It is designed to restrict peoples’ spending power.

Bank Rate influences the rates lenders charge people to borrow money or pay on their savings. If this is all new to you and with the caveat that the following assessment is only at a very high level and it does construe advice, here is what rising inflation and Bank Rate are likely to mean.

It is likely that any new lending for loans, finance and mortgages will see the interest rates rise as the cost to lenders increases. Existing personal loans and finance, such as that used for cars is unlikely to be affected, provided it was undertaken on a ‘fixed’ interest rate, which for consumer finance is normal. Similarly, people with a fixed rate mortgage will see no change until the fixed period agreed ends. Credit cards could well see interest rates rise now because their interest rate structure is not fixed typically.

When watching our utility costs spiral the last thing we want to hear is that the cost of borrowing is going to rise. In an attempt to be positive the increase in Bank Rate is starting to feed through to higher rates for savers.

It is also worth noting that the highest ever Bank Rate was 17% (November 1979). It remained at 17% until 3 July 1980. The lowest rate was seen at the start of the Covid-19 pandemic when it fell to a historic low of 0.1% on 19 March 2020 where it stayed until December 2021.

If the rising cost of living is a cause of stress for you, there are organisation who may be able to help and we have listed some of these elsewhere on our website; please follow this link.

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