According to the Institute for Fiscal Studies, Londoners can expect a financial squeeze in the coming months. A mid-October publication estimates a 0.1% reduction in real disposable income in UK households and predicts sharp increases in inflation during the final few months of the year. Rising costs for necessities like vehicle fuel, electricity, and natural gas have led to an already record-high inflation rate of 4.2% this October. The IFS points to Brexit, increased demand due to lifted Coronavirus restrictions, and the ongoing labor shortage as key factors that drive a “perfect storm” of price surges.
Wages and Cost Of Living
Despite this, many Londoners will still have plenty of cash to spend. Independent groups have calculated a metric known as the Real Living Wage in an attempt to reflect the economic realities of living in both London and the UK in general. The separately calculated London wage comes out to £11.05 per hour. At 48 hours per week and 52 weeks a year, this works out to £27,500 per year, which is well under the London average pay of £39,716. While the city’s poorest have been disproportionately impacted by the pandemic, IFS director Paul Johnson mentions that Universal Credit expansions and tax changes could actually narrow household income inequality.
Credit and Lending
The days of government-backed emergency COVID loans have long passed. But, there is good news: whether you’ve got good or bad credit, My Quick Loan could be a short-term, but wise solution for many households in the UK that can use a bit of help in the current financial climate. And there’s more good news: the Bank of England’s consumer credit data for September suggests that finances are recovering and that credit remains available. Interest rates on personal loans are increasing, but they’re still lower than they were pre-COVID in January 2020 despite current inflation rates.
Economic Scarring and Room For Hope
Today’s economic climate is complex, but there’s room for hope. The IFS mentions that the speed of the economy’s recovery will have a big impact on the long-term damage. Government actions, including emergency loans, loan forgiveness, tax changes, and public projects can have a big effect. According to the IFS, the economy is currently reconfiguring. With proper support, they suggest that the long-term economic damage of the Coronavirus could be limited to half of the 3% figure the Office for Budget Responsibility predicted this March.
In terms of individual finances, things are even murkier. COVID caused substantial lifestyle changes in many households, forcing changes and improvements in logistics, shipping, and remote work in many industries. The ability to work from home in many jobs allows households to save on transportation and potentially childcare or rent. It’s easier than ever to have goods (and groceries and food) shipped cheaply to your doorstep. Wage growth might be limited to certain sectors, but workers in those fields will benefit from an increase in disposable income, giving them the financial freedom to support other sectors via increased spending. Inflation, Brexit, and the ongoing impact of the Coronavirus will continue to have negative effects on Londoner’s finances, but it’s not clear how large those effects will be.
The Road To Recovery
Prices are likely to increase this holiday season, but most Londoners have the tools they need to remain on their feet. Universal Credit expansions and wage increases will help some, while others will take advantage of relatively low interest rates to use loans to get through any rough patches. Clever lockdown-era solutions like video conferencing and having things shipped will help offset the rising cost of vehicle fuel for some. Many households will feel a squeeze, but the economy is definitely beginning to recover.