Inflation – Families struggle to pay bills
With Chancellor Alistair Darling's first budget due next week there are expectations that some action will be taken to ease problems caused by the rise in the basic cost of living. There is widespread concern about rising fuel and mortgage costs. Research carried out by the CEBR (Centre for Economics and Business Research Ltd) found that in January 2008, , the average family had to pay 6.1% more for food, 6.4% more for transport and 1% more for energy compared with the same month in 2007. (The Times, 4 March 2008)
Although average earnings rose by £22 per week in the year to January 2008, the price of food, transport and household bills and taxes increased by £27 over the same period. This means that on average, households had £5 less per week to spend. These findings were revealed in the retailers' Income Tracker, a monthly survey designed to show how much money UK households have to spend.
The FSA (Financial Services Authority) is encouraging home-owners to seek help and advice. An estimated 1.4 million people who have fixed rate mortgage deals ending this year will face an average increase of £100 per month. (The Times, 4 March 2008)
Debt charities report that they are receiving a rising number of calls from people struggling to pay everyday bills. Chris Tapp of the charity Credit Action said: 'When you add together the increases in grocery bills, energy costs and the fact that all credit is getting more expensive, it means that the real cost of inflation is far above the government's measure.' (The Times 4 March 2008)
When Mr Darling presents his budget next week, he has little room for generous gestures. However, it is understood that the Treasury has given consideration to options such as vouchers to help the poorest households with their gas and electricity bills. However, any 'giveaway' gestures are likely to be delayed until his pre-election budget next year or the year after. (The Times, 4 March 2008)
The present financial climate is an external influence affecting all sectors of the economy. Read The Times 100 case study on McCain Foods. This sets out the importance for the company of being able to identify the external influences in the business environment and on its consumers and adapt accordingly. Read also The Times 100 theory section on inflation.
The Times, 4 March 2008 (print edition)
Potential Study Questions:
- Define inflation and explain what causes it.
- What other phases make up the business cycle?
- Explain how interest rates significantly influence business.
- Why is it important for businesses to assess external influences?