Opinion: Creativity is required as prices rise
- Credit: Getty Images/iStockphoto
We’ve grown used to a prolonged era of low interest rates, a period which has witnessed a protracted surge in borrowing: to buy homes, cars, new kitchens and a whole lot more besides. But is the era of ultra-low interest rates drawing to a close?
Twelve months ago, the UK base interest rate stood at 0.1pc; today, it’s 1pc, a ten-fold increase, which perhaps explains why the most-searched for phrase on Google recently was ‘rising inflation’.
Prices have soared following the lifting of Covid-19 restrictions and a surge in consumer spending. Demand for goods continues to outstrip supply and, as every GCSE economics student knows, this classic combination results in rising prices.
Furthermore, if the supply of specific products is reduced further, as is the case with oil and gas following Russia’s unwarranted incursion into Ukraine, the price of those goods will escalate more rapidly – as anyone who has recently received a gas or electricity bill will confirm.
The most effective way of taming inflation is to raise interest rates as it pushes up the cost of borrowing (for homes, cars, new kitchen etc), while people gradually spend less. However, a fall in consumer spending could cripple high street retailers, many of whom are still recovering from the pandemic.
In other words, the Bank of England must be careful not to raise rates too much and cause longer-lasting damage to the economy, which is why interest rates are ultimately unlikely to soar beyond 5pc.
This might sound like a horror story, but within recent living memory circumstances have been much, much worse.
- 1 Police called to 'youth with knife trying to climb school gates'
- 2 Jailed: 9 north London offenders put behind bars in June
- 3 'Reclaiming public spaces': Islington's free nonconformist street party
- 4 Guilty: Man murdered woman at bus stop and tried to kill another a day later
- 5 Concerts to be held across Islington as festival returns.
- 6 MP steps in to get Ukrainian violinist to concert with Islington orchestra
- 7 Covid: North London hospital admissions rising amid national surge
- 8 Bullying and absence concerns see City of London Academy Highgate Hill get ‘requires improvement’ Ofsted
- 9 The Rolling Stones prove rock ‘n’ roll is alive and kicking at Hyde Park
- 10 What to see in the sky in July: Year's biggest supermoon and meteor showers
In the early 1970s, a combination of a four-fold increase in the price of oil, soaring wages and a massive rise in the cost of basic foodstuffs succeeded in pushing the annual inflation rate to 26pc. The economy was on its knees, thousands of businesses closed, unemployment reached 3 million for the first time since the 1930s Depression years (and would eventually exceed 4 million) and Britain slipped into recession.
Eventually, the International Monetary Fund (IMF) had to bail the country out of the mire, while rampant inflation resulted in interest rates hitting an eye-watering 14pc.
Yet anyone who tells you that ‘this time it’s different’ needs his head examined. So how can we counter the impact of higher prices?
I suspect that many families have already tapped at least a proportion of ‘rainy day’ savings and, as the school summer holidays loom, parents will worry that they’re in for an expensive time.
Six weeks of keeping children occupied without over-spending on attractions, day trips and holidays would test the skills of any economist.
Earlier this week, David Beard, founder of personal finance website Lending Expert, spoke about summer holidays that “can wind up costing a small fortune.”
However, he noted that “with a bit of planning, you can pack the summer holidays full of family-friendly fun things to do that won't cost a penny. You don't need to spend money to create core memories the kids will treasure for years to come.”
Mr Beard’s firm has come up with an array of ideas designed to save families money. Here’s a selection:
Pick your own fruit
“Summer is prime strawberry and raspberry picking time. For just a few quid, you can take the whole family and have fun finding the largest, juiciest fruit, and you'll get to take it all home too for more fun making homemade jam,” say Lending Expert.
“If you know people who live near the coast or deep in the countryside, suggest a house swap for a few days. Everyone will enjoy a change of scenery and the only cost involved is getting there.”
Camp in your garden
“If you don't have any camping kit, borrow a tent and sleeping bags from a friend who does and set the kids up in the garden for the night. It will be a massive adventure for them and you'll still have your toilets and shower to enjoy as a bonus.”
Make good use of free attractions
“Every town and city in the country has free attractions - simply do a Google search for "Free things to do in…" and insert your location. You'll be surprised at the number of galleries, museums and cathedrals that won't charge an admission fee.”
Visit public spaces
“The UK has loads of beautiful beaches, lovely parks and breath-taking landscapes to explore that won't cost you a penny - take a picnic and a frisbee for the kids.”
Clearly, you don’t have to spend a fortune to keep youngsters amused and occupied. Older readers who remember the dark days of the 1970s will almost certainly concur – and probably remember low-cost summer holidays with the fondest of memories.