Business leaders do not expect the current cost of living crisis to abate within the next 12 months.
Research conducted by Partners& among C-suite professionals and senior HR, finance and payroll executives found that nine out of 10 employers expect the inflation crisis to last at least a year. Half of these expect it to take more than two years for inflation to reduce to target levels, while 40 per cent think it will reduce back to this level within one to two years.
Partners& says this cost of living crisis is likely to be prolonged by rising interest rates pushing up the costs of mortgages for millions of employees. Forecasters expect the Bank of England to push up base rates from its current level of 2.25 per cent to 5 or 6 per cent next year.
Partners& wellbeing and benefits director Steve Herbert says: “There seems to be a persistent myth that the peak of inflation will mark the end of the cost-of-living crisis, yet passing this peak means only that prices are continuing to increase from their already high level, just at a slightly lower rate than before that peak was reached. This effect is known as disinflation.
“It follows that employees pay will continue to be squeezed until inflation returns to somewhere near the 2 per cent Bank of England target level, adding to the long-running stagnation of real earnings which the UK has experienced ever since the financial crisis of 2008. Employers will therefore need to be mindful that financial stress and money worries will continue to plague many employees throughout this period.”
He adds that a sharp increase in mortgage rates will feed into this crisis. Although by historic measures the expected rise in interest rates is not exceptionally high, Herbert points out mortgage rates will be at a far higher level than they have the over the past 10 years.
He adds: “It should also be noted that the level of mortgage debt is now very much higher than it was the last time that interest rates hit the 5 per cent level, and it follows that the impact on monthly repayments is likely to be quite penal for those with mortgages. This is worrying, not least because around 1.8 million households will reach the end of their fixed term mortgage deal in 2023.”
He says there is deep concern that this cost-of-living crisis combined with the increased cost of borrowing will leave employees facing years rather than months of difficult financial decisions.
Partners& points out that financially distracted or distressed employees are likely to be less engaged, focused, or productive at a time when employers need each and every employee to deliver their optimum level of productivity. The intermediary is encouraging employers to offer workers practical support via the targeted use of employee benefits, discount schemes, and financial wellbeing tools.
As well as improving employee wellbeing Partners& is also warning employers that the extremely difficult financial situation ahead could force some workers to cross a line into areas of professional bad practice or even potential criminality. Employers need to be aware of these risks, and ensure that they have the right insurances in place to protect their organisation.
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