The home budget perfect storm?

07 February 2022

After a series of episodes during which we were requested (or required) to work from home if we could, the current thinking is that we are being encouraged to return to the office, to get a bit more back to normal, and to restore the UK economy, indeed see it grow. Many have enjoyed the ability to avoid travelling costs, and with the current steady rise in oil and fuel prices, the cost of this travel to work may well be higher than pre-pandemic times, especially if you commute by train (annual train fare rises have been capped by the government at 3.8% from March 2022).

The last inflation figures noted that CPI, the Consumer Prices Index, had risen to 5.4%, with the possibility that this will continue to rise. You might have already experienced the rise in your weekly shop, or clothes purchases, for example. You might have also found that your salary did not increase by this level, and indeed that your money seems to be stretching less far because of the freezing of personal allowances this tax year and for the next five tax years.

There are some points that many household budgets may not yet have factored in, as follows:

  • Bank of England base rate rises to counter the rising inflation position, particularly if you have a variable rate loan or mortgage. An increase from 0.25% to 0.5% was confirmed on 02 February 2022.
  • The energy price cap being reset at the end of March 2022. It's going to be expensive for many with a 54% increase being applied to the cap, and average increase of £693 per household.
  • The National Insurance increase set to start in April of 1.25p in the pound which will be an added burden for many. This will see an employee on £30,000 a year pay an extra £214 in tax. Someone on £50,000 will pay £464 more, and on £100,000 will pay £1,089.

Each increase or additional burden might not be a problem in isolation, but for most, you can see from the examples above that there are nine possible increases heading out of your bank balance starting now, and really manifesting themselves from April 2022, in the new tax year.

Forewarned is forearmed, as they say, and now is the time to think about your monthly budget and calculate what changes could be needed going forward to accommodate rising prices.

We hope you enjoy the lead up to spring and have some fun at Valentines and beyond. However, keep a close eye on costs and expenses in the next few weeks, and keep reviewing your household budgets to make savings where possible. It might be a tough few months ahead.

No individual advice is provided during the course of this blog.

Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899

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