Will inflation come down in 2023?

Inflation remains a huge obstacle for households in 2023, with a double-digit rate of 10.1% reported in the most recent figures pertaining to January.

However, economists have noted that the rate of inflation in the UK has fallen for three consecutive months since reaching a peak of 11.1% in October 2022, suggesting that the cost-of-living crisis may have peaked and that the situation will continue to improve through 2023.

But is this the case, and what steps can you take to overcome a rising inflation rate? Let’s get into it!

What’s Driving Inflation in the UK?

In simple terms, inflation describes a general (and usually sustained) increase in the cost of goods and commodities within an economy.

This has been pronounced since February last year, when the rate of inflation in the UK was 6.2%. This month is significant, as it marked Russia’s invasion of Ukraine and severely disrupted global supplies of gas, oil and commodities such as wheat.

In the case of wheat, for example, some 40% of the World Food Program’s supplies come from the Ukraine, so the invasion of Russia has directly threatened this will increasing the risk of global food insecurity. It has also seen food prices rise markedly.

In terms of gas and energy, sanctions on Russia have encouraged Vladimir Putin to limit supplies into Europe.

As a result, wholesale energy prices have soared due to the ongoing imbalance between supply and demand, causing inflation to rise well beyond the Bank of England’s (BoE’s) target of 2%.

When Will Inflation Begin to Decline in 2023?

At the end of last year, UK Prime Minister Rishi Sunak announced that he would move to halve inflation to around 5% by the end of 2023.

This would largely be the result of ongoing quantitative easing measures, of course, which include continually hiking and sustaining a higher base interest rate (this recently increased once again by 0.5 percentage points to 4%).

However, it can be argued that inflation has already begun to depreciate, having declined by 1% over three consecutive months since October.

If his trend continues, we expect to see inflation reach 5% before the end of the year, while the central bank is now predicting that while the UK will still enter a recession in 2023, this will be much shorter and less severe than initially thought.

How Can You Overcome Inflation in 2023?

In the meantime, it’s still important to organise your finances and take actionable steps to managing your finances and minimising the impact of inflation.

One potential step is to consider taking out a loan to help boost your finances, even in instances where you have bad credit.

This may help you to pay down debt or provide a financial safety net, while accessing favourable terms in terms of interest repayments.

It’s also wise to cap your expenses where possible, focusing on your weekly (or monthly) grocery spend and energy consumption. Installing a smart metre can help you to manage and review your energy usage, identifying areas of peak usage and ways in which you can save money.

With interest rates also high, you could use any additional cash or disposable income to boost your savings and capitalise on slightly superior products.