Talking point
Most of us are now feeling great pressure on our finances as a result of global events. We may be in for a bumpy ride in the months ahead, says Mel Hunter, but history shows that we will come through this
When the Governor of the Bank of England uses the word ‘apocalyptic’ to describe rising food and energy costs, and admits to feeling ‘helpless’ against challenges the country is facing*, it’s no wonder the rest of us nibble our nails and struggle to sleep.
The cost of living crisis reared its head at the start of the year and, with the Russian invasion of Ukraine, it escalated sharply. By the summer, we were facing levels of inflation – the rate at which prices rise – that we had not experienced since Adam Ant topped the charts in 1982. We have seen the average family’s food shop soar by nearly £300 a year**; petrol costing a record amount – passing the £100 mark to fill up; and energy bills often doubling, with worse to come.
Jonquil Lowe, senior lecturer in economics and personal finance at The Open University, describes the war in Ukraine, on top of the post-pandemic rise in oil and gas prices, as ‘the perfect storm’ for increasing costs. Looking back over the past century, she explains, there have been five sharp spikes in inflation, each one associated with unrest, including both World Wars and energy price shocks. Around the time of the Gulf War in the early 1990s, inflation hit a level ‘on the scale’ to what we are looking at today, she says. ‘What makes it more painful now is that the country involved is Russia, which has much more impact on the world economy.’ The rise in the price of oil and gas – a market in which Russia is a huge player – was magnified by the surge in demand post-pandemic. ‘The big things likely to cause spikes in inflation – war and oil price rises – both happened at the same time,’ she adds.
Maike Currie, investment director at Fidelity International, says another factor was the prolonged lockdown in China. ‘This has had a major impact on global supply chains.’ That, plus the disruption to the flow of things such as wheat and sunflower oil from Ukraine, a country known as the ‘bread basket of Europe’, have all played their part. ‘While central banks are raising interest rates in response to rising inflation, the prices that are really squeezing consumers are being driven by global forces beyond the control of domestic central banks. It is an unprecedented set of circumstances, so it is hard for the Bank of England to navigate,’ says Maike. It also means it is harder for the rest of us to find the best route through.
However, we have weathered very difficult financial times in the past. During the 100 years of Good Housekeeping, we have been tested numerous times, from the Seco
