How much will energy bills, food and mortgages go up by?

Life in 10% inflation Britain: Energy bills UP £800, annual food costs UP by £270 and real wages DOWN by £1,200… as mortgages are set to soar by THOUSANDS amid cost of living crisis

  • Bank of England estimates energy bills will go up 40% this October, or up £788 from £1,971 in April to £2,759  
  • Clothing prices rising by up to 8% this year while food prices are going up by more than 8% in coming months
  • Bank is forecasting real post-tax income will fall by 3.25% this year – equivalent to an income fall of £1,200 
  • Mortgage borrowers across Britain also now face paying thousands of pounds more for their home loans 

Britons face a punishing rise in the cost-of-living in the coming months with official forecasts expecting energy bills to rise by 40 per cent in autumn, while clothing and food prices will both go up by 8 per cent this year.

The Bank of England expects the Ofgem energy cap to rise by an average of £788 from £1,971 in April to £2,759 in October, making it the biggest factor in rampant inflation that the Bank said is now heading towards 10 per cent.

Its Monetary Policy Committee report issued this week also said fashion retailers expect to put up their prices by between 5 and 8 per cent this year, while supermarkets forecast price increases ‘possibly exceeding 8 per cent’.

The most recent Office for National Statistics figures for the average household spend on clothing and footwear gives a figure of £23.40 a week, or £1,220 a year – meaning this could rise by £98 to £1,318 under the projection.

As for food costs, research by Kantar last week put price rises for supermarket shoppers in monetary terms, saying that the average food bill could increase by £271 this year following a 5.9 per cent year-on-year rise to last month.

Rising prices will impact most sectors of the economy with the Bank unveiling an updated inflation forecast that now peaks at 10.4 per cent at the end of this year – more than double its highest inflation forecast pre-pandemic. 

And the Bank is now forecasting real post-tax income will fall by 3.25 per cent this year – equivalent to an income fall of around £1,200 for the average household, which would be the weakest year in records dating back to 1990.

Mortgage borrowers across Britain also now face paying thousands of pounds more for their home loans, after the Bank yesterday raised its base rate for the fourth time in less than five months to a 13-year high of 1 per cent.

 

Inflation is set to remain above the government’s 2 per cent target until early 2024

 

The Bank of England is now forecasting real post-tax income will fall by 3.25 per cent this year – equivalent to an income fall of around £1,200 for the average household, which would be the weakest year in records dating back to 1990

Rising prices will impact most sectors of the economy with the Bank of England unveiling an updated inflation forecast that now peaks at 10.4 per cent at the end of this year – more than double its highest inflation forecast pre-pandemic

The latest move is set to add £252 to the annual cost to a homeowner with a £150,000 standard variable loan based on the previous rate – and £756 for those with a £450,000 mortgage. But experts predict more pain to come, with analysts at Capital Economics expecting the base rate to reach as high as 3 per cent next year.

This would mean homeowners with a £150,000 loan would be paying an extra £3,048 a year when compared with December 2021, when the base rate was at a record low of 0.1 per cent. Borrowers with a £450,000 loan would face a £9,132 rise in the annual mortgage cost, at a time when families are already struggling with soaring bills.

How the cost-of-living could rise for YOU 

Energy bills: Up 40% this October, or up £788 from £1,971 in April to £2,759 in October (Bank of England prediction)

Clothing: Up 8% this year (expectations of fashion retailers, in Bank of England report). Annual average spend is £1,220 according to latest Office for National Statistics figures, so this would go up £98 to £1,318

Food prices: Up by more than 8% in coming months (expectations of supermarkets, in Bank of England report). Kantar expects annual rise of £271 this year

Interest rates: 3% by mid-2023 (expectations by Capital Economics, in Bank of England report). Homeowners with a £150,000 loan would be paying an extra £3,048 a year when compared with December 2021, when the base rate was 0.1%

Inflation: Peaking at 10.4% at the end of 2022 (Bank of England expectations)

Wages: Down 3.25% in real terms (Bank of England forecast – equates to £1,200 to households on average)

Rail travel: Up 11.8% in January 2023 (based on economists’ projections of RPI for July 2022)

Hargreaves Lansdown senior personal finance analyst Sarah Coles said today: ‘The rate rise may have looked relatively harmless, but with so many people’s finances on a knife edge, it risks pushing them into difficulties. 

‘Even this small increase could put one in ten people on variable rate mortgages under financial pressure. If rates continue to go up, and the Bank of England rate reaches 1.5 per cent, more than one in three could face real financial challenges. 

‘And while those on fixed rate mortgages are protected for now, 1.5 million face the end of their term this year, and over a third might struggle with the extra cost.’

She said the firm surveyed people last month to find out how much their monthly mortgage costs would have to rise by this year to put their finances under pressure, and 10 per cent said up to £50 would be enough.

As for increases of £100 a month, a third of people said they would face difficulties, and with a rise of up to £200 a month, two thirds said they would struggle.

Sarah Pennells, consumer finance specialist at Royal London, said: ‘Borrowers on a variable rate have barely had time to deal with the effects of the last rate rise and are now faced with a further increase. While some will be able to afford it, others will undoubtedly struggle.’

There are around 1.1million homeowners with standard variable rate mortgages and 850,000 on tracker deals who are now likely to see their repayments raised from next month. Even those on fixed rates could eventually face a substantial rise in their payments.

Joanna Elson, of charity the Money Advice Trust, said: ‘We know that any small increase in costs can push households with stretched budgets into difficulty.’ 

Fixed-rate mortgage deals can protect borrowers from rising interest rates and brokers have already seen a surge in those locking into longer-term fixed loans.

Dominik Lipnicki, of Your Mortgage Decisions, said: ‘We are taking at least four times as many ten-year fixer applications as normal.’

 

David Hollingworth, of L&C Mortgages, added: ‘Those that don’t take action to pin down their rate could see their mortgage become an increasing burden.’ 

Could rail ticket prices soar by 12% next year? 

Rail commuters in Britain could see their season tickets rise again by hundreds of pounds next year as rampant inflation continues amid the cost-of-living crisis, with fares potentially rising by up to 12 per cent. 

Experts predict annual growth on the Retail Prices Index (RPI) – the measure used by the Government to set train ticket price increases – could hit 11.8 per cent in July, which would be the highest level since the 1980s.  

The RPI figure in July is normally used to set the fare increase in January, although the implementation of this has been delayed until March for the past two years to give people more time to buy tickets at a cheaper rate. 

While the Government could cut the rate by 1 percentage point, which last happened in 2003, the increase would still be well above the previous record rise of 6 per cent in both 2009 and 2012. 

The average rate on a two-year fix stands at 3.03 per cent, up from 2.34 per cent in early December, according to analysts Moneyfacts. The average standard variable rate is 4.78 per cent.

More lenders raised rates yesterday, following others who pulled their cheapest deals last week. NatWest confirmed it would be increasing some of its two-year fixed deals by up to 0.35 percentage points.

In addition, rail commuters could see their season tickets rise again by hundreds of pounds next year, with fares potentially rising by up to 12 per cent.

Financial experts predict annual growth on the Retail Prices Index (RPI) – the measure used by the Government to set train ticket price increases – could hit 11.8 per cent in July, which would be the highest level since the 1980s. The RPI figure in July is normally used to set the fare increase in the next January.

Yesterday, members of the Bank’s nine-strong Monetary Policy Committee voted 6-3 to increase rates from 0.75 per cent to 1 per cent – the fourth time in a row that they have voted for a rise – taking rates to a level not seen since 2009.

Three members called for a bigger increase to 1.25 per cent due to worries over rocketing inflation, with the Bank ramping up its forecast for Consumer Prices Index (CPI) inflation to rise from 7 per cent currently to more than 10 per cent in October – its highest level for 40 years – due to soaring energy prices.

In a grim set of forecasts, the Bank predicted that growth will contract in the final three months of 2022 as the cost squeeze sees households rein in their spending.

The UK is set to narrowly miss a technical recession, as defined by two quarters in a row of falling gross domestic product (GDP).

The rate of Consumer Prices Index inflation increased to 7 per cent in March from 6.2 per cent in February

People walk past the Bank of England in London this morning before the release of the Monetary Policy Report

But the Bank forecast ‘very weak’ quarterly growth in 2023 and a contraction as a whole next year, with GDP falling by 0.25 per cent and unemployment picking up sharply as cost pressures hit hard.

Milk prices hit new high after 9% increase since start of last month

Milk prices have hit a new high after an increase of nearly 9 per cent on supermarket shelves since the beginning of April, new figures revealed today.

And they are still rising as farmers struggle to cope with the increased costs of energy, animal feed and other parts of their business. It also means higher price tags for other dairy products, particularly cheese, said analysts Associa for The Grocer magazine.

Milk is 23.5 per cent above the average price over the past five years, according to Government agriculture statistics, now standing at 36.79p a litre at the point of production – what is known as ‘the farmgate.’

In the shops it means a four pint plastic carton, the most popular milk product sold, is now £1.25 in all the major supermarkets, including budget chains Lidl and Aldi, an 8.7 per cent rise since the start of April. At Waitrose it is £1.30. 

Prices could still rise, with dairy farmers claiming that the current farmgate price has not kept up with costs which have risen 46 per cent over the past 18 months, including a 27 per cent rise in the cost of feed alone.

John Allen, of trade specialists, Kite Consulting, is predicting a ‘four pinter’ container will rise to £1.60 by the end of the year. He added: ‘Retailers will have to make their own decisions about whether to make milk a loss leader.’

Cheddar has gone up by between 10p and 20p for 400g since mid-March, while butter has seen similar rises.

The prediction for growth in 2022 remains unchanged at 3.75 per cent, although the Bank also slashed its growth outlook for 2024 to 0.25% from the 1 per cent it predicted in February.

Sky-high inflation will see household disposable income plunge by 1.75 per cent this year – the second highest on record, the Bank warned.

Governor Andrew Bailey said: ‘I recognise the hardship this will cause for many people in the UK, particularly those on the lowest incomes, often with little or no savings, who are hit hardest by increases in the prices of basic necessities like food and energy.’

He added that further rate rises are likely to be needed ‘in the coming months’ to cool rampant inflation, but admitted that the impact on finances of soaring costs in the short term ‘is something monetary policy is unable to prevent’.

Financial markets predict that rates will reach 2.5 per cent by the middle of next year as policymakers battle to contain inflation.

But the Bank signalled that rates may not rise as high as that given that this is likely to leave inflation below the 2 per cent target at the end of its forecast.

The report makes for painful reading, with household income under severe pressure ahead of a predicted 40 per cent hike in the energy price cap in October.

Deputy governor Ben Broadbent said the UK economy is facing a shock on a bigger scale than that seen in the 1970s oil and energy crisis, though he said it is not set to last as long.

Growth of 0.9 per cent was better than the Bank expected in the first three months of 2022, though this looks to be the calm before the storm.

It predicts the economy will flatline in the second quarter before dropping by nearly 1 per cent in the closing three months of 2022.

And while the rate of unemployment will ease back further to as low as 3.6 per cent, it will jump back up to 5.5 per cent within three years, according to the Bank.

Now that rates have hit the 1 per cent threshold, the Bank also confirmed it will start drawing up plans for selling off some of its £847 billion in Government bonds – built up as part of its quantitative easing programme launched in 2009 amid the financial crisis.

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