Crisis for some, Increase for most
For some time now I have taken issue with the term ‘crisis’ constantly thrown at us from all sections of the media when it comes to the cost of living. I have fielded more worried calls and messages in recent weeks and months than I saw in the Covid outbreak in 2019 or the banking collapse of 2008. The reality is it is nowhere near as bad as it was at these points, yet the level of stress, anxiety and genuine fear across our society doesn’t reflect this.
First off, I need to caveat this with the understanding that for some, those on the lowest incomes or those working in particular business sectors, it could well be a cost of living crisis and I don’t mean to belittle their individual plight in any way. For the majority though, what we are seeing now is a squeeze in personal or business disposable funds, not an existential threat.
The Factors at Play
Double digit inflation is not a good thing for our economy and is way off the government’s target. There are two significant and well-known causes for this – Covid and the Russia / Ukraine conflict.
We knew an inflationary increase would happen after the covid recovery measures were put in place. Whilst we might have hoped it would have been less painful, not many could have forecasted what has happened in Ukraine. This is a global problem and certainly won’t be fixed by the UK’s actions alone. However, we must remember that this isn’t the first time we have seen this level of inflation and it is highly unlikely it will last. Investment markets have fallen, the pound has fallen to the dollar and UK political turmoil has exacerbated these issues. I ask again, what is new? These things happen with disappointing regularity and will no doubt continue to do so.
The outlook is challenging, and a global recession may well be on its way but most of these issues are already factored into today’s markets. Employment levels are still high and if we can see some of the productivity gains modern technology promises, the tools are already in place to keep any recession relatively shallow and short lived.
What to Do Now
It is a good time for some prudence, re-budgeting and perhaps some precautionary measures but don’t be tricked into believing media headlines deliberately designed to inflame the situation. Most reports are unbalanced, full of hyperbole and in some cases simply wrong.
The short-term outlook isn’t wonderful but it is certainly not as bad as it has been made out to be. We may need to cut our cloth accordingly but now is the time to make a financial plan if you don’t have one, and an excellent time to review the one you have if you do. We all have some challenging budgetary decisions to make but it isn’t a time to panic and for most it is not a crisis.