A Squash and a ‘Fiscal’ Squeeze
Written by Rory Moynagh
If there has one benefit from the past 2 years, it is undoubtedly the opportunity to spend more of those precious moments with our kids. Whether that be the school run, homework or generally just being around more, the pandemic has afforded people the opportunity to reset and perhaps realign those priorities in life.
I’m sure like many, after an excitable day, our kids like to unwind before bedtime with a book.
During a recent reading of Julia Donaldson’s “A Squash and a Squeeze”, I’m sorry to admit, but my mind started to wander as I was reciting the words (almost by memory now at this stage!).
With the increase in hybrid working, I’m sure many might relate to the challenges of space being at a premium in our households at times, however I then began to consider the current fiscal squeeze facing many households.
Fiscal Squeeze
Whether it be rising heating bills, electricity costs, shopping bills, credit cards or fuel costs, the squeeze on household income is very much real.
Coupled with future increases in National Insurance Contributions from 6th April 2022 as well as last week’s announcement of future increases in local property rates, the financial pressure facing households continues to increase.
It was recently reported by the Office for National Statistics (“ONS”) that 76% of people were paying more for food, energy and petrol in the 10 days 3rd February 2022 to 13th February 2022. This was an increase from 69% for the period 19th January 2022 to 30 January 2022. Furthermore, consumer prices also rose by 5.5% in the 12 months to January 2022, the highest since March 1992 (7.1%).
The challenges presented by such inflation cannot be underestimated.
Whilst the Bank of England have attempted to curb the rising levels of inflation by increasing interest rates earlier this month, this will also have an additional knock-on effect on those with tracker or variable rate mortgages, further tightening the squeeze facing many household incomes.
Not Just Households, Businesses Too
Of course, this pressure is not limited to purely households, with many businesses also facing rising costs.
Inflation, Brexit and wider economic and political issues have resulted in increased labour, transport and material costs. The resulting impact on margins has been considerable for many businesses, and whilst many have publicly stated that every effort is being made to avoid passing such cost increases on to the consumer, the above ONS statistics unfortunately confirm the reality that such costs are already being passed on and will likely continue to be in the months ahead.
Plan, Plan, Plan
For both consumers and businesses, the only response to such rising costs is to plan accordingly.
Households should start, or if they already have one, update, their household budget. This will not only help prioritise essential expenditure and manage outgoings, but also highlight any potential areas of concern. Once highlighted, any such problems can then be addressed at an early stage before they become too problematic.
Similarly, businesses should review their business plan and update their financial projections accordingly.
Owners should perform extensive sensitivity analysis under various scenarios and take time to strategise regarding both the pressures currently being faced and the future direction of the business as a result.
Again, early phase planning and review, will help businesses identify any funding gaps or financial pressures, which can then be discussed with stakeholders, banks, funders and / or creditors.
What is important to note however is that no matter how big the problem may seem, there is always professional assistance available to help work through the issues.
Advice
Seeking the assistance of professional advisors to review and critique a household budget, or a business’ operational, financial and strategic plan, could provide the very solution to the current pressures being faced.
There are solutions out there that can provide a chink of light in even the bleakest of situations. What is required is early engagement to identify and address the issue, and a focused and tailored approach to its resolution.
Whilst the past few years have presented their challenges, we all must recognise of how far we have come and what we have all been through. Of course, there will be further challenges ahead and we are all aware that the unprecedented level of Government support during the pandemic will have come at a cost.
However, if we all face this current period with the same approach and determination that we have recently shown, people and businesses can come through this and be in a position to take advantage of future opportunities that present themselves.