Cost-of-living round up – the key takeaways and what to expect next week

Key stats of the week

• The UK is seeing its highest inflation for 41 years.
• Prices have risen 11.1% in the year to October, up from 10.1% the previous month.
• The cost of electricity has risen 65.7% in a year and gas has shot up an eye-watering 128.9%.
• Older pensioner households are spending on average 8% of their disposable income on heating.

The cost-of-living headlines this week

In the markets

Susannah Streeter, Senior Investment and Markets Analyst

This week, the UK is reeling from yet another super-hot inflation reading as soaring food and energy prices take their toll on household budgets. The CPI measure of inflation leapt to 11.1% in October, a bigger jump than expected.

The constant march upwards in prices is increasingly painful, and for now shows little sign of quickly easing. But with a possible two-year recession looming, wholesale energy and food prices falling and unemployment already rising, there should be an easing of price pressures.

We’ve already seen the rise in US producer prices (the cost of goods at the factory gates) slow more rapidly than expected in October. For now though, wages can’t keep pace with runaway prices, even though pay packets have been rising in the UK at the sharpest pace since 2000.

There has been yet another retail casualty of consumers tightening their belts. Joules is set to appoint administrators after having become stuck in the mud of the cost-of-living crisis. Customers with stretched budgets were put off from splashing out on its floral ranges, wellies and coats, despite discounting.

Impact on households

Sarah Coles, Senior Personal Finance Analyst

Inflation figures out this week revealed just why life is feeling so expensive. Again, energy prices and food price hikes took a particular toll. The October price hike means electricity is now up 65.7% in a year and gas an eye-watering 128.9%.

The new energy support package will come as a relief for average earners, who were worried they might be left out in the cold. The new package, from April, will keep bills at £3,000 for average users – protecting them from a rise to as much as £3,700.

This still leaves them with a horrible mountain to climb. The fact that this comes on top of so many other price rises, means life will be even tougher next spring.

The rise would be an impossible challenge for those on lower incomes, so the additional support payments from the government are vital. However, even at this level, there’ll still be an enormous number of people facing impossible choices.

Explainer of the week – triple lock

The pensions triple lock was introduced to make sure the State Pension would keep its value in real terms. It guarantees to uprate State Pension in line with whichever is the greatest of 2.5%, average wages or CPI inflation. It has played its part in supporting pensioner incomes that had previously been subject to some tiny increases.

However, in recent years it’s been dogged by concerns that it’s expensive and unfair to younger people who receive no such guarantees on either their wages or benefits. However, it’s an important benefit to pensioners and the government is under pressure to keep it – it forms a crucial part of the Conservative government manifesto.

Last year the government suspended the triple lock after the furlough scheme inflated wage data to over 8%. Awarding pensioners such an increase while others were struggling was deemed unfair and the government opted for a 3.1% inflationary increase.

Following the autumn statement, pensioners are now in line for a 10.1% increase next year.

List of the week – five festive figures

1. We’ll spend an average of £576 this Christmas.
2. Two in five will spend less than they did last year – women are more likely to cut back.
3. 15% will put some of the cost on a credit card and 8% will use Buy Now, Pay Later.
4. 24% will spend less on each person and 22% will buy fewer gifts for the first time this year.
5. Only one in five won’t trade down to a discount supermarket for at least some of their food – and 15% will do so for the first time this Christmas.

Source: Survey of 2,000 people by Opinium for HL in September 2022.

What to expect next week

In the markets

Susannah Streeter, Senior Investment and Markets Analyst

The big boom in DIY, which played out during the pandemic, has been fading. Now, with mortgage payments rising, and food and energy bills soaring, there’s likely to be less disposable cash around. Borrowing might also be more difficult for major projects. This could impact some do-it-yourself retailers.

An expected correction in the housing market could dent sales further if people put off moving and delay putting their stamp on a new property.

However, some benefit could come from people opting to make small changes in their current homes instead. Demand for energy-saving products like loft insulation is also likely to stay strong, which could offer a boost.

Lots of retailers have already been hit by higher energy costs, which have eaten into margins. But any sign that supply chain issues are continuing to ease will be well received given the problems snarl ups have caused.

Black Friday week

Sarah Coles, Senior Personal Finance Analyst

This week is Black Friday week. It’s an expensive time for the two in five people who told us they always buy Christmas presents in the sales and the quarter who tend to do it when times are tough. However, if you’re going to take advantage, it’s worth doing your research in advance. That way you know what’s a good price before you start.

It’s also worth watching out for common tactics – like retailers stocking up on a handful of the best deals, in the hope that once you’ve been lured to the site, you buy the next best thing available. For them it’s a good time to try and get rid of older models, bump up delivery charges, and in some cases even hike the price of previously discounted stock to take advantage of extra demand.

It’s why it’s always worth using a price tracker to make sure you’re getting a decent deal.

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