The sustained rise of inflation is increasing the costs of everyday items that we buy, making it particularly difficult for those on low incomes to make ends meet.
Tom Selby, head of retirement policy at AJ Bell, said: “Whether you’re saving for the future, approaching retirement or already taking an income from your pension, the impact of the cost-of-living crisis is likely to be felt in various ways.
“The extent of this impact will depend on a range of factors including your income, spending patterns and how long spiralling prices persist.
“A short, sharp bout of inflation would be extremely painful for many, but the real fear is that the cost-of-living will keep rising over a prolonged period.
“People in different stages of their retirement savings journey will also face different challenges in this environment, from maintaining a long-term savings plan to making a pension income stretch further.
“Whatever your circumstances, it’s worth checking your financial position in light of this new reality, cutting back spending where possible and, crucially, setting a clear budget based on your spending and saving priorities.”
Meanwhile, salaries are failing to keep up with inflation, and pressure is mounting on the government to do more for struggling households. The latest rate of increase in employees’ wages is 5.4%, including bonuses, to February before taking into account inflation, according to latest figures from the ONS, which lags far behind the 7% rise in inflation. In real terms, this effectively amounts to a pay cut. However, unemployment has fallen to 3.8%, its lowest level since 1974.
If you’re retired, you may be particularly affected by the rising cost of living. Read more in our article How does inflation affect my pension? Millions rely on the State Pension in later life, and pensioners don’t get pay rises. Find out more in our article How the State Pension works and why the State Pension rose by 3.1% in April in our guide What is the pension triple lock?
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Many pensioners will have other sources of income they can draw from but those largely, or wholly reliant on the state pension will certainly struggle, especially as they spend a greater proportion of their income on the things that are rising steeply – energy and food.”
The sustained rise in inflation is expected to prompt the Bank of England to continue raising interest rates. The Bank increased interest rates for the third time in a row in March to 0.75% from 0.5%, with more increases expected over the coming months to curb inflation.
An increase in interest rates is bad news for borrowers, as it results in higher mortgage repayments for those on variable or tracker deals. If you’re worried about the impact a rate increase could have on you, read our article What can you do to prepare for an interest rate rise?
You can learn more about inflation and the impact it has on your finances in our guide What does inflation mean for my money?