Financial doom and gloom to continue for some time

In his annual speech at London's Mansion House in early June, Bank of England governor Sir Mervyn King warned that we could be only halfway through a period of "seven lean years" and that the UK faces at least another three years of financial pain until the economy gets back on track.

He added that the Bank will try and keep interest rates low until at least early next year so as not to threaten the economy's fragile recovery.

While continuing low interest rates will come as a relief to mortgage holders up and down the country, who have been enjoying some of the lowest repayment rates in decades, the governor's predictions paint a gloomy picture for most of us.

While the past three years have felt bad, the signs are that the second half of the downturn is going to be even tougher.

Inflationary pressures

There are no indications that inflationary pressures are about to abate after the consumer prices index (CPI, the official measure of inflation) remained at 4.5% in May - its highest level since October 2008.

This means not only will prices of goods and services continue to rise steadily (petrol prices in particular), but savers will also continue to see the real value of their deposits eroded. All in all, our hard-earned cash will be worth progressively less.

Meanwhile, public sector workers are facing the unwelcome prospect of paying more for their pension benefits; six million will also be forced to work for longer as the pension age rises from 60 to 66.

While headline figures from the Office for National Statistics report that the total number of unemployed people fell by 88,000 over the first quarter to 2.43 million - the largest quarterly fall in unemployment since the second quarter in 2000, this doesn't tell the full story.


The number of people unemployed for more than two years increased by 39,000 quarter-on-quarter to reach 385,000, while the number of people working part-time because they could not find a full-time job increased by 46,000 to reach 1.21 million - the highest figure since comparable records began in 1992.

For those in employment, hope of a pay rise continues to be slim. According to research from uSwitch, more than half (56%) of the working population faces a pay freeze this year and of the small percentage who have been given a pay rise, more than three-quarters (79%) have received less than the rate of inflation.

Meanwhile, several reports show that many of us have been forced to dip into our savings simply to keep our heads above water. According to, almost a quarter of us (23%) with savings are using this money to pay for everyday household bills and expenses.

This shocking figure is backed up by another report from AXA, which shows that one in four of us have used our savings during the last quarter to make ends meet.

The worry is that these savings will eventually be depleted, leaving many people with no safety net to fall back on and pushing them into the ranks of the 16 million Brits who, according to, have no savings at all. 

So Sir Mervyn's prediction of another three years of hardship doesn't bode well: if it's tough now, it's bound to get tougher. Perhaps the best we can do is keep a close eye on our spending and hope for a silver lining.