The UK is witnessing some of the highest inflation in 40 years on the back of skyrocketing energy bills, a global food crisis, and supply chain issues. In this guide, we explore why inflation is increasing, the effects, how the government is tackling the issue, and whether more needs to be done.

Why is inflation rising? What are the effects?

Inflation stood at 9% in April, up from 7% in March. Why was it so high? Well, there are several causes.

First, the Ukraine War is affected fuel and food prices around the world. This has occurred at a time of existing supply chain issues due to the global recovery from the Covid-19 pandemic. And in the UK, Brexit has increased trade barriers (increasing prices in kind), reduced the amount of available staff (causing wages to increase and businesses to pass this cost to customers), and reduced the value of Pounds Sterling, making it more expensive to import goods.

As a result, people are feeling their budgets squeezed. Food, fuel, heating, electricity – prices everywhere are increasing, meaning everyday people are having to turn to new methods of earning to keep up with costs. From getting second jobs to turning to online forex trading, people are feeling the pinch and going to great lengths to protect their finances, so, to stop millions from falling into poverty, the government has been forced to act.

How is the government dealing with inflation?

There are several steps authorities are taking to try and cushion the blow for consumers. Some, like the windfall tax on oil and gas company profits, improvements to welfare, a £300 payment to pensioners, and a £400 grant to all households, will help to reduce the impact of spiralling prices.

However, many people still want their pay to at least keep up with the rate of inflation, so their purchasing power isn’t dented – get paid less, and they’ll be receiving a real-terms pay cut. The government can’t compel the private sector to increase wages, but it has introduced an increase to the National Minimum and Living Wages.

How much is the minimum wage increasing?

The minimum wage increases will affect different groups more than others:

• National Living Wage – £9.50, a 6.6% increase
• 21–22-year-olds – £9.18, a 9.8% increase
• 18–20-year-olds – £6.83, a 4.1% increase
• 16–17-year-olds – £4.81, a 4.1% increase
• Apprentices – £4.81, a 11.9% increase
• Accommodation offset – £8.70, a 4.1% increase.

So, for apprentices and 21-22-year-olds, the increase to minimum wages will be inflation-busting, though anyone 23 or over, or under 21, will see a real-terms pay cut.

Such increases paint a confusingly mixed picture given the government has signalled it wants to keep pay rises below inflation. They argue that such an increase in wages would simply drive up business costs and prices, increasing inflation even more. That’s cold comfort for households struggling up and down the UK, however.

Do you think that wage increases should match inflation? Or is the best way for the government to keep a handle on the problem to provide more stimulus to the public by way of grants and other forms of financial support? Let us know your thoughts in the comments section.