Inflation Falls to 3.4%: But What Does This Mean?
By Alex Bryce
Inflation is falling, but will this have any impact?
For almost three years now, the UK has been suffering heavily from inflation. From cocoa powder prices to rental costs, it’s often felt like there’s been no end in sight.
What is inflation?
Inflation is the increase in the price of something over time, for example, if a bottle of juice costs £1 one year, but the next it costs £1.10, then the annual inflation on soft drinks is 10%.
How does it affect you?
Well, it affects you in many ways. One of which is that everything around you gets more expensive, this is because businesses are struggling to cope with the recent change in things such as energy bills and are forced to try and pass some of their bills to their consumers.
The Bank of England has a 2% inflation target. This means that drastic measures must be taken in order to meet their aims. One measure that we have seen taken is the increase in interest rates to 5.25%. This measure is taken to encourage people not to take out loans as it makes it harder and more expensive for them to pay back over time. The banks will increase saving rates to coincide with this measure, however, the increase in borrowing costs can have a massive impact on the economy, for example, homeowners may see higher mortgage repayments.
Higher-interest loans are also dangerous as it means that businesses take out fewer loans due to fear of not being able to pay them back, meaning that they are less likely to hire new staff and more likely to let current staff go in a bid to save money.
The good news is, for the first time in nearly two and a half years, the UK inflation rate has dropped to 3.4% - a 0.6% drop from January alone.
So, would it be fair to suggest that finally, we have hope as a nation that this major financial burden is soon to be off our shoulders? Well, not quite.
Even though this is a major step in getting back to normality, the cost-of-living is still a significant obstacle in the road, and with the wage growth continuing to outpace inflation, it is very hard to see any notable cuts any time soon.
Since its 11.1% peak in October 2022, the UK has seen the fastest fall in inflation rates since the 1980s. Whilst Chancellor Jeremy Hunt has claimed that the Government’s plan to tackle inflation “is working”, Labour’s Shadow Chancellor Rachel Reeves believes that the UK’s economy will always be in threat until Tory rule ends.
She said: “Be in no doubt - the biggest risk to Britain’s economy is five more years of the Conservative Party.”
According to the Office of National Statistics (ONS), the gradual decrease in the pace of price changes in the food and drink sector has been a big help in pushing inflation down.
It did however suggest that the prices of petrol and rental costs have stunted the inflations rapid decrease.
In data published by the ONS last month, figures showed that the average cost of rent in Scotland has hit a record high, with a rise of 10.9% in some places - the average cost of rent in Scotland currently sits at £913 a month according to Homelet Rental Index Scotland.
Whilst there is no certainty of when things will go back to normal, experts at the National Institute for Economic and Social Research (NIESR) suggest that inflation rates won’t meet the 2% target this year. Instead, they forecast it will be in 2025.
Even though the cost-of-living crisis is still very current, we are seeing a light at the end of the tunnel and hopefully by next year this will be a fading memory.