With Christmas spending already hitting household finances; another concern is whether UK living costs will rise in the New Year.
With uncertainty remaining over the UK’s withdrawal from the European Union, it is hard to gauge whether this will cause a rise in UK living costs in 2020.
UK prices typically rise in line with inflation, often around the 2-3% mark. If wages rise at the same rate, then there should not be as significant an impact to Britons personal finances.
Let us dig in and attempt to forecast.
First, some good news.
In October 2018, the UK Chancellor announced an increase in the personal allowance, rising from £11,850 to £12,500 for the tax year beginning in April 2019.
This will be a welcome addition to the take-home pay of millions of taxpayers. The accounting company Deloitte said this would mean an annual tax saving of £130 for basic rate taxpayers.
These levels will be frozen the following year but significantly will rise in line with inflation after that. Meaning as people earn more, they will not automatically be dragged into a higher tax band.
The Living Wage Foundation, on the other hand, has conducted its own analysis and believes that those workers on the minimum wage will need to work an additional six weeks each year merely to meet their everyday living costs.
Despite the new government minimum rising to £7.83 per hour, this would provide a worker with an annual salary that is less than the real living wage, around £1,800 less. This amount has been calculated to cover what people need to spend on necessary living costs for transport, housing, food and childcare.
The good news is that the minimum wage will be rising faster to catch up with inflation, and wages also continue to mirror this trend.
Despite the rise in wages and tax-free allowances, it appears food prices will be rising in 2020. Brexit could be to blame, with leading food suppliers believing that import tariffs, migrant labour restrictions, and a weakening pound would have a more significant impact of food and drink prices than any other factor.
However, there is another influential factor – the weather.
As the UK experienced a hot summer this year, with record high temperatures and drought; typical food harvests have hit farmers hard. Lower yields of staple foods including potatoes, onions and carrots have reduced by 20%.
These lower harvest then will cause an increase in food prices for consumers predicted to be around 5%, a rise of £7.15 to the average monthly shopping bill.
UK rail fares have already increased by 3.1% in January 2019, mirroring the rise in inflation, and this is less than the 3.4% increase in 2018.
Some good news then for rail commuters? Well, rail fares have risen rapidly over the price of inflation in the previous decade, so although the rise in line with inflation is welcome, it is still high for many households.
The same is true for international air travel – prices are due to rise in line with inflation to 3%, with travelling to Western Europe experiencing the highest rise in airfares.
As always with travel, aim to book as early as possible and look out for bargain rail and flight deals that could save you pounds.
Uncertainty over Brexit is likely to have an impact on the UK housing market into 2020, surveyors believe.
A report from the Royal Institution of Chartered Surveyors (RICS) believes that the number of homes being sold – and their prices – will fall next year.
Fewer people are interested in moving, and fewer want to sell if they cannot get the price they want for their property.
House prices are predicted to increase by only 1.5%, well below inflation, and so in essence, this is a decrease in prices. However, if nobody wishes to sell, those looking to buy are unable to take advantage of this decrease in house prices.
Fuel & Energy
Drivers will be happy that the fuel duty on petrol has been frozen for the ninth year in a row. However, fuel prices have increased for the tenth month in a row as of September 2018, and this trend is only going to continue despite the freeze on fuel tax.
Energy bills in the UK rose by £60 (on average 5%) in April 2019 despite the introduction of a price cap. Mainly caused by wholesale cost increases and suppliers will have to pass these onto their customers regardless of whether tariffs are capped or not.
The bills are expected to level out after the summer of 2020 and remain the same until the ned of the year, new research suggests.
Another issue that could affect UK energy bills is Brexit as many top UK energy suppliers get their energy from the EU. Again, until this occurs, it’s hard to know if this will increase prices even further.
Pensions, Childcare & Benefits
What about any additional support to cover the increase in living costs? Well, there is good news for retirees who will see their state pension rise by around £4.25 a week or £220 a year from April 2019.
The full state pension will rise above the rate of inflation giving pensioners a welcome boost to their earnings and coping with living costs.
Sadly for families, there is no increase in child benefit or child tax credits as they have been frozen as part of the UK government’s austerity measures. Rises in these benefits will not be seen until 2020 at the earliest. There may be some relief for those on Universal Credit who have struggled with the work allowance; however, these details have not yet been published.
There is little relief for those who require childcare so they can return to work, as costs of childcare have increased 52% since 2008 whilst wages have only risen 17%, and it is likely this trend will remain, making it harder for working families and working parents to budget.
For those lower-income parents and families, there is a tax-free childcare scheme that can help with childcare costs of up to £2,000 a year if they are eligible. Parents can check the criteria here if they have an approved childminder.
So, will UK living costs rise in 2020?
The shortest and simplest answer is yes, they will.
UK living costs will rise in 2020, with some areas more than others after the general rise in inflation.
Furthermore, once the UK exits the European Union, there could be further impacts to UK living costs, although it is impossible to tell whether this will help reduce or increase the cost of living.
UK households will no doubt feel some impact, and now would be the time to maximise budgets and get 2020 off to a prosperous new year!
What are you doing to limit the impact this will have on your personal finances?
Let me know by leaving a quick comment below.