In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.
Economic uncertainty due to the Ukraine war, rising inflation, soaring energy prices and the cost-of-living crisis have put more pressure on borrowers and will affect a major part of UK families. The Russian invasion poses considerable risks to the UK as it has fuelled the UK cost of living crisis and intensified uncertainty.
With Ofgem increasing the energy price cap by 54 per cent, higher fuel bills and a rise in national insurance payments, living standards will experience the sharpest drop in decades. Analysts have warned that more families will struggle with poverty, with low- and middle-income households facing the biggest challenges as energy, food and transport bills rise. Small companies will also be the most affected by rising energy prices according to a key Bank of England report.
Cost of living crisis
The current cost of living crisis is being driven by rising costs, including higher food, energy and petrol prices. High demand for oil and gas since 2021 as well as uncertainty about supply following the war in Ukraine and the subsequent sanctions against Kremlin, have pushed prices up globally. These resulted in higher costs for energy companies which have been passed on to consumers.
UK inflation reached a 30-year high in March, and is expected to go higher, especially in April when prices go up.
What changed on the 1st of April?
Household budgets were immediately affected from the following changes:
- Ofgem increased the energy price cap by 54 per cent. This is almost £700 annual rise in bills for those who pay by direct debit.
- A 10 per cent national insurance increase which will impact on the lowest wage earners the most.
- A 3.5 per cent council tax rise.
- A freeze on the income tax threshold.
- An average of 1.7 per cent rise in water bills.
- Lateral flow tests will no longer be free for everyone in England, or the rest of the UK in the coming weeks.
Bank of England report
The Bank’s key Financial Policy Committee (FPC) has highlighted that if energy bills keep rising, then household and business finances will face more pressure, with the poorest families to struggle the hardest from the cost-of-living squeeze.
In its latest report, the FPC said: “An increase in the cost of living, partly due to rising energy and other import prices, is likely to affect household resilience across the income distribution, with a larger impact on lower income households that spend a greater share of their income on energy and other essential items.”
Borrowers will be able to continue with their mortgage repayments, but the FPC said their income strength will be put to the test while lower-income families will be hit the hardest.
The Russia – Ukraine conflict could disrupt supply chains and impact the UK and global economy, posing particular risks to small and medium sized firms, which are more vulnerable to surging costs. The report warned that “Companies in sectors most affected by rising energy prices will also face a greater cost shock.”
Higher energy prices and how to cope
The 54% rise in the energy price cap in April – up £693 a year means that even those households which consider themselves more comfortable will start to struggle too. Rising oil and gas prices will feed through into the price of manufactured or distributed goods, and consumers will face a widespread surge in prices.
For those of us, who might find themselves faced with these new challenges, it would be good to start finding ways to save money and energy, explore different deals by providers or simply try to save more.
You can cut back on spending and identify areas where you can afford to spend less. One of the ways to do so, especially if you are a company sending money overseas, is through your currency specialist. If you are using a bank, now is the time to explore alternatives and discover all the benefits you can receive by switching to a currency specialist such as Universal Partners FX.
If your business is facing the weight of rising energy bills, then you can discuss a strategic plan with UPFX and find the best possible way to pay your suppliers overseas or the costs for importing goods. Taking a few steps now will help shelter your business’ finances and leave you free to focus on other important areas.