According to The Money and Pensions Service’s Financial Capability Survey, 11.5 million UK adults have less than £100 in savings and only 49% of people could last 3 months or more without borrowing money if they lost their main source of income.
Why Might You Struggle to Save?
It’s difficult to save money if you have any debts because you are tied into making repayments.
It’s also difficult to save when you don’t have a budget plan as it’s harder to keep track of your money. Budgeting can help you see where you might be able to reduce your spending and where (if possible) you can afford to put money into savings. Use our free budget calculator through our sister company’s website if you need some help making your budget!
It’s hard to save money if you have a habit of overspending. It can be easy to spend beyond our disposable income, especially at times like Christmas…
The Cost of Living Crisis
UK savings will likely only decrease in continuing months. This is because many people cannot afford to save money at the moment, giving the huge inflationary pressure on living expenses.
You can only afford to save money when your expenses are more than your income. Therefore, many people might see their savings slowly being depleted, the growth of their savings coming to a standstill, or their savings’ growth slowing down.
Why is Saving Money so Important?
It enables you to achieve your financial goals
You can form an emergency fund for any unexpected expenses. This in turn gives you security and peace of mind as the emergency fund acts as a safety net so that you can afford to cope with the unexpected
It can help you avoid taking out credit, protecting you from entering a cycle of debt. This point is particularly true when considering how many people turn to things like payday loans when they have unexpected bills
It means you can accumulate wealth, which is good if you want to do something like channel money into an investment
It helps protect your credit score as you can make payments on time
If saving for a house, it means you can put down a bigger deposit, meaning you will have a smaller mortgage with more competitive interest rates
We know that it can be really difficult to save money when the price of everything constantly seems to be on the increase. Sometimes saving is not a viable option, as you may simply not have any spare cash to put away. However, if you are able to, building your savings is certainly worth considering…
by Red Star Wealth
The Cost of Living is taking its toll on almost all of us, but charities are not excluded from these pressures. Food banks are under huge strains at the moment, and here’s why.
Increased Demand
It can be really difficult for some people to eat properly when the cost of everything around them is rising. As a result, many are being forced to turn to food banks as they can’t afford to properly feed themselves and their families.
The Trussell Trust is the UK’s largest food bank network, supporting 1,300 food bank centres to provide food to those struggling to eat. Because of such high demand for food banks at the moment, they have had to set up an emergency fund appeal page on their website.
Their website reads:
“For the first time ever, food banks are giving out more food than is being donated. This is an emergency”
In fact, the Trussell Trust has distributed 46% more emergency food parcels to food banks in August and September this year compared to the same months in the previous year. This means that demand is starting to outstrip supply.
Demand will surely only increase further coming into winter, as many are forced to choose between heat and food in the cold weather.
Decreased Supply
Food banks are reliant on donations and because of the squeeze on everyone’s personal finances, many can’t really afford to find the spare cash needed for donating food. Therefore, we are currently in a situation of restricted supply and soaring demand.
Increased Costs
If this wasn’t bad enough, these food banks are also becoming more expensive to run due to rocketing energy and fuel costs.
Their warehouses, vehicles, and distribution centres are all affected by these rising running costs.
Rising Food Costs
According to the Office for National Statistics, food and drink prices are rising at the quickest rate since April 1980. This is because food imports are becoming increasingly expensive due to rising transport and packaging costs.
The UK is very dependent on food imports which is precisely why its cost increases are hitting us so hard. The graph below shows just how much more reliant we are on these imports than other countries are.
Source: FAO via Sky News
Reducing the Cost of your Weekly Shop
If you’re struggling with these rising food prices, there are some tips you can follow to help you cut costs
Stick to a list… avoid shopping when you’re hungry or when you don’t know exactly what you need or you will find yourself making unnecessary purchases
Meal plan… make meals in bulk and freeze extra portions so that you can buy ingredients in bigger packages (as these tend to be better value for money)
Bulk buy… if you have enough cupboard space, try to buy in bulk. Bigger bags of things tend to be far cheaper in terms of the price per kilogram. It’s good to do this with things that will last and which you will definitely use, such as pasta or rice
Find alternatives… avoid name brands and find cheaper options where possible
Shop around… see which supermarket has the best deals. If you’re struggling to compare the prices of each item, you can try doing your normal shop one week at a different shop than you normally use and then compare the overall price
Go meat free… meat is expensive, so reducing the meat in your diet can help you reduce the price of your shopping. Maybe try to pick one day a week where you go meat free!
Grow your own food… if you have the garden space, you can grow certain things, like potatoes. Even if you don’t have this space, you can grow herbs on a windowsill inside your house or flat so that you don’t have to keep buying them
Avoid pre-prepared fruit and vegetables… these tend to be priced much higher, so it’s worth spending less money and taking the time to do the chopping and peeling yourself
Use the yellow stickers… even if a yellow sticker item is not on your shopping list, consider buying it anyway if it’s something you would use. If so, you can always freeze it and use it at a later date
by Red Star Wealth
We all hear the word ‘inflation’ so much that you’re probably sick of it. However, stagflation seems to be a topic less talked about. With the risk of stagflation having increased in the UK, we think it’s important to have a quick rundown of what this actually means
The Different Types of ‘-flation‘
Inflation- a general rise in prices, meaning you get less for your money
Disinflation- a fall in the rate of inflation. Prices are still rising but at a slower rate
Deflation- a general fall in prices
Stagflation-persistent high inflation, coinciding with high unemployment and slow economic growth. It is a combination of both ‘stagnation’ (slow growth, no wage increases and high unemployment) and ‘inflation’
Stagflation is a Rareity
Until the 1970s, most economists shared the belief that inflation and unemployment have an inverse relationship. This means that when inflation increases, unemployment tends to decrease. However, we now know this is no longer the case
What Happened in the ’70s?
We haven’t faced stagflation since the 1970s. This economic situation was caused by the oil crisis acting as a supply shock
The oil crisis meant the UK and US could no longer import oil from the Middle East. Continued strong demand with a huge restriction on supply meant that oil prices shot up by a whopping 300%
Demand and supply diagram by Red Star Wealth
As shown by the above diagram, when supply restricts, prices are pushed up
What Causes Stagflation?
Supply-side shocks, such as labour shortages or the example of the 1970s oil crisis
Certain fiscal and monetary policies, e.g, government spending being too high, or interest rates being too low
What Would it Mean for Us?
Stagflation would hit the average UK household hard; it would mean people’s wages weren’t keeping up with the price increases of goods and services
It would essentially be a worsening of the current cost-of-living crisis
Once it starts, it is difficult to reverse
Managing inflation involves a reduction of the flow of money to reduce inflationary pressures caused by high demand. For example, the recent government decision to raise the interest rate to 1.75% is a way of trying to counter inflation
On the other hand, managing a recession usually involves an influx of money into the economy to kickstart economic activity and encourage spending. Part of this could be lowering the interest rate
Given that stagflation is a combination of both of these, it is very difficult to solve, as these are two completely opposite approaches
Stagflation can be dealt with by dealing with the supply-side shock that caused it as quickly as possible. Then, action should be taken to reduce inflation before dealing with the stagnation aspect
Will we enter a period of stagflation?
In its latest Financial Stability Report, The Bank of England has said the outlook of the UK economy “is subject to considerable uncertainty”. Click here to read the full report.
As discussed in one our previous blogs, inflation is estimated to reach 13% later this year, meeting the first condition of stagflation
However, the UK’s GDP actually rose by 0.5% over the 3 months preceding April this year. This said, this growth could certainly end up being negated if there is a drop later this year caused by the cost-of-living crisis reducing spending. Additionally, whilst our unemployment rate is actually low, there are still labour shortages caused by Brexit and Covid reducing the size of our labour force
However…
The average inflation of Great Britain in 1975 was an enormous 24.11% so we aren’t in the same boat yet
We can’t predict for certain exactly what will happen to the economy. At the end of the day, we aren’t psychics or oracles! All that this info means is that the risk of stagnation has increased, not that it is inevitable and unavoidable
by Red Star Wealth
With the cost of living constantly increasing, it can be difficult to understand why the Bank of England has chosen to increase interest rates. Why increase the rate of interest when this will make mortgages more expensive? Join us as we investigate why this is the case
What is inflation?
Inflation is when an economy’s goods and services see a general increase in price. The rate of inflation is a measure of the speed of this increase; a higher rate of inflation means prices are generally increasing quicker
Inflation reduces the purchasing power of consumers’ money. In a nutshell, they get less “bang for their buck”
What is disinflation?
Disinflation is when the rate of inflation is reduced. This is the current aim of the Bank of England. In order to keep inflation stable, they aim to keep it at a rate of 2%
Source: Office for National Statistics
The CPIH is the Consumer Price Index, taking into account housing costs
As you can see from the above figure, inflation is currently far above this target. In fact, the Bank of England has predicted that the rate of inflation may reach over 13% this year
For those who wish to look further into the changing inflation rate over the years, we recommend checking out the Office of National Statistics
Measures must be taken to reduce this inflationary pressure… this is where the increased interest rate comes into play
The effect of interest rates on inflation
By increasing interest rates, the Bank of England is aiming to discourage consumer borrowing and encourage consumer spending. By saving more and thus spending less, the idea is that there will be less inflationary pressure stemming from consumer demand
On the 16th June 2022, the Bank of England’s base rate of interest rose from 1% to 1.25%. As of the 4thAugust 2022, this has increased to 1.75%, serving as the biggest rise in the last 15 years
What does an increased interest rate mean for you?
Mortgage rates will increase for any homeowners that aren’t on fixed rate deals
You will have a higher rate of interest on your savings, meaning more money in the account. However, inflation is still eating away at the purchasing power of money so it is still reducing in value
You will have a higher payments for money borrowed on credit cards or loans
One of the main drivers of inflation is the increase in price of wholesale gas prices, of which higher interest rates will not bring down
A recession?
A recession is when there is a prolonged downturn in economic activity for two or more consecutive quarters (each quarter being 3 months long)
The Bank of England has warned that we are likely to enter a recession later this year, which is predicted to last as long as 5 quarters
Whilst this all seems like a very grim outlook, there are ways of dealing with these difficult times. Check out this blog for help in managing your finances during a recession
