Rising gas prices and other cost pressures have raised fears that households are facing a significant squeeze on their finances.
Here is a look at the cost of living crunch and anything that households may be able to do to ease some of the pressure:
– What is happening to energy bills?
A spike in global gas prices is pushing up the cost of energy significantly.
Regulator Ofgem regularly sets an energy price cap, which acts as a “backstop” protection for customers on default tariffs and the cap will increase to £1,277 from October 1 for a typical user.
However, the cap is based on what has already happened in the underlying energy markets, and so it is expected to jump again next April.
Consumer champion Martin Lewis has suggested that from April 1 the cap could jump to over £1,500 a year.
– What if my energy firm goes bust?
Regulator Ofgem will protect any credit balance customers have and appoint a new supplier. The new deal could be significantly more expensive, given the current situation.
– Will we go back to a 1970s situation of blackouts?
Ministers have said there is no risk of the lights going out this winter, as energy supplies are secure despite the rising costs.
– What about my supermarket shop?
Shoppers will start noticing shortages of food items such as poultry, pork and bakery products within days due to the impact the crisis is also having on food supply, according to the Food and Drink Federation.
– What else is making life tough financially right now?
Living costs have already picked up. The Consumer Prices Index (CPI) measure of inflation was running at a nine-year high in August. Experts previously predicted the 3.2% increase could accelerate to more than 4% by the end of the year.
Many households are also still trying to repair the financial damage caused by the coronavirus crisis. Some are carrying higher debts than they would have otherwise had, after taking payment holidays to combat the immediate financial threat from the pandemic. According to UK Finance figures, the average value of suspended mortgage payments per month was £755.
– What is happening in the near future?
A £20-a-week uplift in Universal Credit payments is scheduled to end on October 6 – with some 4.4 million households on Universal Credit also poised to see their energy bills rise significantly in October.
– Anything else on the horizon?
Looking further out, a £12 billion tax hike is also on the horizon to help fund social care reforms. A 1.25 percentage point increase in National Insurance will be introduced from April 2022.
– So what can households do to try to offset rising costs?
Shopping around and comparing energy deals is still important, although with so many prices rising it is likely to be a much tougher task than usual.
MoneySavingExpert.com has a Cheap Energy Club which helps people to find deals to suit their needs from across the market.
People could try to find a fixed rate deal to lock into, or they could rely on the protection of the price cap and hope the situation may improve.
There are also various support schemes available such as Winter Fuel Payments and the Warm Home Discount.
Ofgem has information about the support available atwww.ofgem.gov.uk/energy-advice-households/find-schemes-grants-and-benefits-help-home-energy.
– Any other ways households could cut back and make savings?
There may be ways to make small savings which will build up over time. For example, timing supermarket shops to coincide with times of day when items are being marked down, or making packed lunches rather than buying lunch out.
Following mortgage price wars in recent months, homeowners could see if they could cut their monthly costs by switching their mortgage.
Several banks also have current account cash switching offers of £100-plus, which could also give household budgets a cash injection.
The Government-backed MoneyHelper service has budgeting guides atwww.moneyhelper.org.uk/en/everyday-money/budgeting.