Inflation increase pushes consumers deeper into debt
The inflation rate rose to 4.5% in August, according to the latest figures from the Office for National Statistics.
The main contributing factors included rising utility bills, higher food and clothing prices.
The rate increased from 4.4% in July and the Bank of England expects the Consumer Price Index to rise to 5% before the end of the year.
This is grave news for consumers as the cost of living soars, plummeting UK households further into debt.
Wages are not rising in line with inflation though, which leaves consumers with less to spend and more debts to cover.
The price of clothing and footwear increased at the fastest rate on record (3.7%) for the July to August period.
The end of the summer sales and introduction to autumn prices saw female clothing increase more than male or children’s wear.
Furniture and home goods also experienced a price rise, from 2% between July and August compared with a 1 % rise a year ago.
The biggest annual rise in the water and energy bills in more than two years has also pushed up the rate of inflation.
Gas and electricity prices from 5 of the “big 6 “energy suppliers have risen by around 20%, adding between £150 and £200 to the average annual fuel bill.
The inflation rate is now double the Bank of England’s target rate of 2%, with little sign of returning to the target rate soon.
The increased rate of inflation will have a detrimental effect on the pockets of cash-strapped Brits.
New research from Alliance Trust Savings found that 65-74 year olds are the age group which will suffer the highest inflation rate at 5.4%, which is the fastest rate of price change since October 2008.
Those under 30 face an inflation rate of 4.9%, which is the highest rate to face people in this age bracket since September 2008.
Mounting debt prevents Brits from saving
Kevin Mountford, head of banking at moneysupermarket.com, commented on the increased cost of living, “Basic rate tax payers now need an account paying at least 5.63 per cent just to preserve the value of their savings, rising to 7.51 per cent for higher rate tax payers and a staggering 9.01 per cent for savers paying the top rate of tax. Currently no savings accounts pay enough to offset the damage done by inflation.
“While most savers won’t be able to secure an inflation beating product, it is still vitally important they check their rates and be prepared to switch if they are not on the most competitive deal. The difference between the average and top paying rates is considerable, so moving to a better deal can go a huge way in helping savers limit the impact on their pots.
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