Your New Year financial health check-up

Inflation is slowing down, but what does this mean for our wallets? It’s time for an economic check-up!

As the chilly winds of winter approach, households across the UK are gearing up for the cold months ahead. But this year, the winds bring with them more than just a nip in the air. The much-discussed topic of inflation has had the nation in a tight grip, and the update on the cost of living is at the forefront of everyone’s mind.

And, just as you take extra care of your health in winter, it’s also worth spending some time reviewing your expenses.

With reports suggesting that 77% of us are feeling stressed about money, the cost of living is having a major impact our wellbeing. Recent reports may suggest that inflation is ‘slowing down’, what does this really mean for our wallets?

Is UK inflation on the mend?

At the basic level, inflation is a measure of how much prices for goods and services rise, thereby reducing the purchasing power of money. For shoppers, this means that the amount they fork out for their weekly groceries, clothing, and other essentials might increase.

However, with the current slowdown in inflation, we can expect a slight reprieve. It doesn’t necessarily mean prices will drop, but rather that the rate at which they’ve been increasing has slowed.  

And while inflation currently stands at 4.6%, this is just an average across all items. Food inflation remains high at 10.1%. Your ‘personal inflation rate’ could be much higher than the national rate, depending on what proportion of your income goes on food.

While discounts and holiday sales might offer some savings, it’s wise to budget prudently and be on the lookout for better deals. And remember, don’t be lured into buying things unnecessarily when a deal looks good. If you wouldn’t buy something at full price, you shouldn’t buy it just because it’s on sale.

How will inflation affect the next cost-of-living payment?

The cost-of-living payment, a vital lifeline for many, is typically adjusted in response to inflation rates. With inflation showing signs of slowing, there might be concerns about how this will impact these payments.

However, it’s important to note that while inflation is slowing, it’s not in negative territory. This means the cost of living is still going up, just not as rapidly. Given this, there could still be a case for adjusting the cost-of-living payment, albeit possibly at a more conservative rate.

The government’s cost-of-living payments are also due to end after the winter with the payments made between 31 October and 19 November 2023 being the last. This could see “incomes after tax and inflation falling by a further 1% between 2024 and 2025,” for the those on below average incomes, they are likely to be hit the hardest.

Pain relief for mortgage-payers

The direct impact of inflation on mortgage rates can be a double-edge sword. Typically, central banks might raise interest rates to combat high inflation. For those with variable-rate mortgages, this can mean higher monthly payments.

However with inflation slowing, the Bank of England might be less inclined to introduce drastic rate hikes, at least in the immediate future. Those contemplating taking out a mortgage might find this winter a more stable time to make their move, though, as always, it’s crucial to seek financial advice and keep abreast of any policy changes.

If you’re moving house, or considering remortgaging, a mortgage broker should be your first port of call. Looking through lender websites directly and entering the same income and outgoings information again and again can be overwhelming and exhausting – and a broker can often get a better ‘broker-only’ deal. Save yourself the pain of entering the same or different information over and over, and as each lender will have different criteria, you may find a huge variation in outcomes. Much like insurance, using a broker can increase your chances of finding the best deal for your circumstances, while saving you the hassle.

Have you recovered from the energy price shock?

One of the biggest concerns every winter is the cost of heating. Energy prices have been a significant contributor to the inflationary pressures felt in recent times. With global energy markets experiencing volatility and the UK’s transition to greener energy sources, there’s a lot in the mix determining your energy bill.

While the slowdown in inflation is generally good news, it doesn’t automatically translate to lower energy prices. Factors like the continuing Russia-Ukraine war, which led to Russia withdrawing its gas from the international markets, global oil prices, national energy policies, and supply chain disruptions play a role.

And that all sounds like a lot to cope with, when all you want to know is what to expect from your energy bill. It’s wise to brace for potentially higher energy bills, and consider how you can make your home more energy efficient, be it through better insulation or more efficient heating systems. If you’re struggling to pay your energy bills, there’s a few ways to cope.

  • Check your direct debit: Your monthly payment is based on your estimated energy use for the year. Your supplier can reduce your bill if what you actually use is less than the estimation.
  • Pay what you can: If you can’t meet your direct debit or quarterly payments, ask your supplier for an “able to pay plan” based on what you can afford.
  • Claim what you are entitled to: Check you are claiming all the benefits and reliefs you can.

Could your bank account benefit from a physical examination?

Money management can be a huge source of stress. As many as 20% of people say they’re scared to check their bank account. But one way to treat this is by taking back control, and creating confidence about what’s coming in and out of your wallet.

Start with a thorough review of your accounts. Download or print off your last few statements (your bank can also send these to you in the post if you call and ask them to do so) and checking that you know about everything there. Having something physical to tick off, highlight, and add notes to will help you get your head round it all. Keep an eye out for subscriptions and regular payments that you don’t use, or you’re not sure what they are.

Some of us here at Howden even find a monthly Excel spreadsheet of use, which can immediately total up all your expected outgoings. And if you reduce or increase anything, the monthly total is plain to see before you commit. This can be useful to view with your statement to catch that rogue Amazon Prime membership you forgot all about.

We’re all guilty of forgetting to cancel a free trial, or signing up for things on a whim! A proper sort-through like this will help you decide what you do and don’t need to be spending on, and save you a few extra quid every month just by cutting down on unknown or unnecessary expenses.

How can you lower your insurance premium?

With the insurance market as it is, it’s likely that your car and home premiums have gone up, possibly by quite significant margin. Premiums have been gradually rising for some time, much like the price of food, but as we only buy insurance once a year, rather than every week, it can be quite the price shock!

Firstly, it’s important you don’t auto-renew. Yes, it’s the route with less fuss, but you’ll probably end up with a worse deal than if you shop around. It’s worth speaking with a broker, who can find the best-value policies available. That saves you from having to trawl through different sites, trying to compare quotes, and gives you extra value for money.

Secondly, speak with your broker about how to tailor your policy. Maybe you’d suit a reduced mileage policy, or increasing your excess but adding excess protection to counter it. There are plenty of ways to adjust your cover to suit you.

It’s best thing you can do now is to stay proactive, informed, and prepared, ensuring that whatever winter and the election year brings, you’re not caught off guard. Inflation slowing undicates some economic stabilisation, but the day-to-day reality won’t change for most of us overnight. The impending winter months, with their heightened expenses, mean that it’s more crucial than ever for households to budget wisely, seek financial advice where necessary, and stay informed of the broader economic landscape.

Don’t forget, our branches are always on hand to help. Find your local team here, and pop in for a chat or give them a call.

Sources: BBC News, The Daily Mail, The Guardian, Sky News, MoneySavingExpert, Money Advisor.

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