Inflation has been a major problem for the UK economy in recent months, squeezing incomes at a time of low pay settlements just as people would have hoped for a smoother path to economic recovery and giving the Bank of England a monetary policy dilemma.

As it monitors possible inflationary pressures, the Bank does not just outline what these may be and how they could affect matters – the subject matter of its quarterly inflation reports – but it also tracks what the public thinks in its Inflation Attitudes Survey.

The latest of these indicates inflation is expected to be higher than was estimated at the last such poll, carried out in November 2011. Back then, the average response was for the Consumer Prices Index (CPI) level of inflation to be 3.9 per cent over the coming 12 months. Today (March 17th), this was shown to have risen to four per cent.

But while the issues of how the Monetary Policy Committee may respond – and the consequences of this for consumers – have been debated, there is also the issue of how individuals will directly act to deal with rising prices.

One finding in the latest survey is that 65 per cent of people will actively seek to find better value goods and services, something that could apply to many areas, from energy and broadband providers to the cost of borrowing.

This latter aspect may be the saving grace for some, as lower monthly repayments could free up the extra cash needed to stretch budgets already being squeezed.

What the inflation trends will actually be in the longer run can only be guessed at, of course. But the facts for February will be available soon enough, with the latest CPI data out on March 22nd.

By Amy White
 

For those struggling in debt, it goes without saying that losing a job can only make things worse, removing the main source of income and therefore reducing or eliminating the ability of a consumer to pay off what they owe.

For those tied into deals without any insurance protection, the situation may be worse still as they will remain liable for the payments, which they could be entirely unable to make.

Such issues may apply to thousands more people than a few months ago after it was revealed today that unemployment has risen again.

According to the Office for National Statistics (ONS), the number out of work was 0.1 per cent higher in the three months to January 2011 than in the quarter before it, with the proportion of the working population in employment down by the same amount.

This could leave many in a position where they could benefit from a debt management plan, which may also apply to those losing a job but getting a new one with lower pay.

Not all the news was bad, as the actual number claiming jobseeker’s allowance fell by 10,200, but the ONS data also revealed pay rates remain below the current four per cent level of Consumer Prices Index inflation, at 2.2 per cent for basic pay and 2.3 per cent for total remuneration including bonuses.

This reduction in income could also cause problems for those in debt and the “squeeze” on UK consumers is the largest since the 1920s, Bank of England governor Mervyn King told the House of Commons Treasury Select Committee recently.

By James Francis