Will the cost of living return to normal?

MattMattMattUK

Rob_Harrold said:

I have been reading the mse forum for many years and always valued every persons opinion on the matters of the day.

Following the very slow slide into financial bedlam following the pandemic and the subsequent in action from elected official's (not a political post) what are peoples thoughts on the future of UK plc?

Many UK households in the UK are on a set incomes per month and the utility companies seem to pick a random number for a new direct debit each new calendar month, will the "deal" agreed by the new, new, new government in the short term fix the problems or are we kicking the can down the road for a few months?

The amounts are not random, but based on usage, however one of the issues is that many think that energy is an "all you can eat" amount based on the monthly direct Debit. The freeze is a temporary fix, a tourniquet to stop the bleed, the issue appears to be though that the government will not stop the bleed, but stick with the temporary measure, in terms of timeline the can has ben kicked down the road for two years, so there is a good chunk of road and potentially it will not run out until after the next election.

Rob_Harrold said:

My concern is that inflation is still not under control and the bank of England are missing in action without a plan, 

The BoE cannot control this type of inflation because the causes are external to the UK, increasing interest rates will have some impact, but economic theory tells us that to bring inflation of 10-15% down would require interest rates of 12-18% and that would destroy the economy so there needs to be changes to the MPC's mandate. The BoE can only use interest rates because that is the only lever they have.

Rob_Harrold said:

other than to increase the cost of living on lower- middle income UK residents

The interest rate rises so far have been ok, 1.75% is acceptable, the next rise (next week) will likely raise interest rates to 2.5%, much more than that and it will have negative consequences for mortgage holders and the wider economy, although there is a lag due to many people being on fixed mortgagee rates for 2-5 years. 

Rob_Harrold said:

and most households are now seriously having to choose between food and heat. 

Most households are nowhere near that choice, although nearly all are having to make lifestyle cutbacks. 

Rob_Harrold said:

I have probably missed loads of points, but this is my first post.

This is not the place for a wider economic discussion, firstly because the forum rules do not allow it, secondly because many people lack a good enough understanding of economics to have a proper discussion. 

wittynamegoeshere

IMO energy was way too cheap before all this, evidenced by the vast numbers of people using excess energy without a care, few people making serious efforts at insulation and many people living in homes that are way too big for their needs.

My suggestion would be to make the forthcoming energy cap a minimum as well as maximum price.  Just fix it for everyone, if the underlying prices drop then the surplus can go to repaying the massive debts that will be built up from subsidising it over the next couple of years, as well as paying back all the covid costs and the rest of the historic debts.

Perhaps the tariffs could be made progressive, so that those using more pay a higher rate as well as a greater quantity, just as we already do with income tax bands.

Miser1964

We should be operating more like a wartime economy, as we are at-war - albeit using fuel as an initial  weapon. 
That means people need to accept food and fuel rationing, central planning of the economy, a return to benefits as a safety-net not a lifestyle choice and lowered standards of living for a decade.

ChaunceyGardiner

still with all this each of us can get on with our life’s, get a better job, new project, education. 

There will be a lot of whinging going on which doesnt reflect the great opportunities in Great  Britain.

There's a better job for everyone? Sounds great! And who will do the jobs that they left?

markin

Inflation can level of but not really reverse, Have you ever heard of a negative inflation rate?

wittynamegoeshere

Yes, it's called deflation.  And it's generally very bad - why buy anything now if you expect it to be cheaper next month?  It causes everyone to stop buying anything but the bare essentials and the economy collapses.

Most central banks target 2%-ish inflation.  That seems to be the accepted norm - a bit of inflation is better than a bit of deflation.

sevenhills

Rob_Harrold said:

Many UK households in the UK are on a set incomes per month and the utility companies seem to pick a random number for a new direct debit each new calendar month

There are indeed many that are ill or elderly that cannot work any more than they already do.
But the vast majority of people can work and with unemployment at a record low, there is work out there.
My sister is 69 and still working and wanting to carry on.

RobM99

ChaunceyGardiner said:

still with all this each of us can get on with our life’s, get a better job, new project, education. 

There will be a lot of whinging going on which doesnt reflect the great opportunities in Great  Britain.

There's a better job for everyone? Sounds great! And who will do the jobs that they left?

The unemployed might be a start

Coffeekup

wittynamegoeshere said:

IMO energy was way too cheap before all this, evidenced by the vast numbers of people using excess energy without a care, few people making serious efforts at insulation and many people living in homes that are way too big for their needs.

-snip-

I agree with you. My energy bills have been around £50-65 a month for the last 16 years even tho my usage fluctuated in the early years and has gone down in the last 10. 
I commented in a post earlier that I made a few cut backs in the last year, and now the price's are capped by the government the changes strangely doesn't seem worth it.

I'd like to think the "next 2 years" households will look at what is costing them money in their usage and make better decisions on if it's worth the cost. On the other hand id the help from the government is masking the issue.?

ChaunceyGardiner

The unemployed might be a start

Yes, that would be a start. But there are over 2 million on the minimum wage, let's assume another 2 million on slightly above it. Unemployment currently stands at 1.29 million. Given that unemployment is the lowest it's been for almost 50 years, and employers have been crying out for staff for months, we can assume that at least half this figure is comprised of those who are unemployable; literally no employer will engage them in any capacity. Where else can we find replacement employees, once everyone moves up?