Everyday bills such as gas, electricity, water and rent have soared at 10 times the rate of earnings, according to new research from uSwitch.com.
The squeeze will intensify after yesterday’s official data showed consumer price inflation hit a four-year high of 2.9 per cent in August.
This is a blow for savers as the value of cash will now erode even faster in real terms, especially with the inflation rate expected to climb higher in the second half of the year.
Analysts are urging the Bank of England to consider hiking interest rates to strengthen the pound, curb inflation and give a boost to savers.
Everyday bills have soared at 10 times the rate of earnings
A decade after the credit crunch led to panicky queues outside Northern Rock branches, millions of Britons are notably poorer.
Household costs have soared by 20 per cent since 2007 yet total incomes rose just 2 per cent over the same period.
Gas bills have shot up by a staggering 58 per cent, while electricity and water rose 42 per cent and 27 per cent respectively.
The average utility bill now totals £1,602 a year against £1,115 in 2007, with rents rising by a quarter and council tax by a fifth.
Household disposable income has fallen by 33 per cent since 2007 in real terms and Tom Lyon, money expert at uSwitch, said many are being plunged into debt trying to make ends meet.
“Shopping around for better deals on utilities, insurance and other bills could save you more than £1,000 a year, helping to keep family finances afloat.”
Yesterday’s August consumer price inflation figure of 2.9 per cent was up from 2.6 per cent in July, driven by a surge in clothing, footwear, furniture, household goods and restaurant prices.
Kathleen Brooks, research director at City Index Direct, said the sharp decline in the pound has driven up import costs: “If the Bank of England will not step in to ease the pressure on the consumer now, when will it act?”
The pound rose strongly yesterday even though few expect Bank policymakers to hike rates at tomorrow’s monthly meeting.
Brooks said if inflation continues to rise they will have to take action: “Is now the time for Governor Mark Carney actually to vote for a rate hike? If yes, then sterling is likely to fly.”
Analysts are urging the Bank of England to consider hiking interest rates
Anna Bowes, at savings comparison site Savings Champion.co.uk, said that rates on cash are starting to creep up slightly, with the best easy access account now paying around 1.50 per cent, up from 1.01 per cent at the start of the year (see page 30 for latest rates).
The best five-year fixed-rate bonds now pay 2.51 per cent, against 2.05 per cent in January.
“With many accounts paying as little as 0.01 per cent, you have to shop around to get a better deal,” Bowes said.
Darius McDermott, managing director of investment platform FundCalibre, said if inflation continues at today’s rate for three years it would erode £1,000 in a cash account to just £920 in real terms.
McDermott said savers can fight back against inflation by investing in corporate bond funds such as Schroder High Yield Opportunities, which yields 6.18 per cent, and TwentyFour Dynamic Bond, which yields 4.76 per cent.
Those willing to take a higher risk could invest in stocks and shares through a fund such as Fidelity Enhanced Income, which currently yields 6.35 per cent.
McDermott adds: “City of London Investment Trust yields 3.91 per cent with a record of raising dividends over more than 50 years.”
Peer-to-peer lenders such as Zopa.com and RateSetter.co.uk also pay higher rates starting from around 3.3 per cent, but with more risk than cash.