The British Chambers of Commerce claims that the UK is heading for an imminent recession and food prices are soaring. But just how bad are the price rises – and what can you do to minimise the effects? Read on for the facts.

Experts say prices of food, fuel and other basic necessities are currently rising at alarming speeds, and unfortunately for consumers and businesses, salaries are just not keeping up.

Already, the average family has seen food prices rise by a massive £100 on their weekly shop compared to last year. In fact, the price of an average food basket, containing 24 basics like bread, apples, tea and pasta, has gone up by an average of 21% since last year.

On average, this equates to a price hike of £1092 per year – and that’s just on simple, own branded items, according to worrying findings by mySupermarket.co.uk.

“We’re still seeing phenomenal price rises in wheat and dairy based products,” said Johnny Stern, Director at mySupermarket.co.uk. “We would advise shoppers trying to stick to a tight budget to look out for better priced like-for-like items and special offers.”

Experts say families and pensioners will be hardest hit by soaring prices. According to research by Alliance Trust, pensioners, especially over 75s, allocate 16% of their household budget to food compared to less than 9% for the under 30 households – so the 11% food price rises over the last year will have the biggest impact on them.

In contrast, says Alliance Trust, younger generations spend a higher proportion of their incomes on clothing, footwear and audio-visual goods, where prices are continuing to fall – but with less disposable income available, it’s debatable whether they will be in a position to take advantage.

“Food prices are now rising at almost 11%, with basic goods such as dairy prices rising at a rate of over 19%,” said Shona Dobbie, Head of the Alliance Trust Research Centre. “Utility prices continue to rise, with gas price inflation currently running at over 10% and electricity price inflation running at more than 11%. On top of this, petrol price inflation, at 24% is hitting everyone hard.”

Meanwhile, shocking new findings by uSwitch.com show that the UK and Ireland currently offer the worst quality of life in Europe.

That’s partly because the price of goods is climbing faster than at any time in the past 22 years, and outstripping the growth in most people's salaries. Then there’s the inflation-busting prices for fuel and other essential goods, and below average government spending on health and education.

Spain took the top spot, despite families earning an annual net income of only £16,789 – that’s £8,500 below the average in Europe and less than half that of the UK. However with low taxation and cheaper essential goods such as petrol, energy and food, the quality of life in Spain is actually far higher than ours.

Beat Inflation: Just How Much Have Prices Risen?

The UK is now the most expensive place to buy petrol and diesel – at £1.32 per litre, 20p more than the European average – an increase of 38% in two years, according to uSwitch.com. Plus energy insiders predict gas and electricity prices are set to rise a further 40% this year, bringing the average household energy bill up to a crippling £1,467, a total increase of 61% in a year.

And experts agree food prices have already risen between 11-12% this year, the fastest increase since the 1970s.

"Soaring food prices and inflation - not to mention high property costs - are placing the biggest squeeze on disposable incomes in well over a decade,” said Ann Robinson at uSwitch.com. “With below average investment in health and education, it appears that we are getting a raw deal from the government for the fruits of our labour.”

Yet experts say the Government could easily reduce inflation stresses by cutting fuel tax.

David Kuo, Head of Personal Finance at Fool.co.uk, says that the government is filling its coffers at our expense.

"Currently, 60% of the advertised price for unleaded petrol is taken in taxes. The Chancellor gobbles up 70p out of 120p every time we fill up our cars. In January, he took 64p per litre in taxes, which was already staggering,” he said.

And for pensioners, the news is even more bleak – in fact, their living costs have risen by more than 30%, according to Clerical Medical chief economist Martin Ellis – and their incomes certainly haven’t.

Inflation Price Rises: Future Inflation Predictions

The Bank of England’s Mervyn King last month warned consumers to get ready for the most difficult economic conditions in two decades, and the experts agree that the financial climate could remain shaky for a while.

“Unfortunately, we expect little respite from this situation over the next couple of months as the oil price is expected to remain high and gas and electricity prices are expected to move higher,” said Alliance Trust’s Shona Dobbie. “This means that headline inflation is likely to rise a bit further in the next few months. The danger is that this high level of inflation forces policy makers to leave interest rates higher for longer, increasing the risk of an even greater slowdown in demand and threatening the economy as a whole.”

uSwitch.com’s Ann Robinson agreed that British households are facing huge financial pressure as take home pay stagnates, inflation continues to rise, and economic growth and house prices fall.

"The UK is not a pretty picture but consumers can help themselves by evaluating their household expenditure to see where they can make savings,” she said. “There are positive signs that consumers are already cutting back, curtailing spending and trying to clear outstanding debt. As long as we take hold of the reins on our household budgets, we can influence our standard of living and improve our overall quality of life."

And Dr Kate Warne, Market Strategist at Edward Jones, said that although investors and shoppers are concerned about rising food and energy prices, particularly those who remember inflation in years past, the Bank Of England is keeping short-term interest rates high and reassuring investors that it is taking appropriate steps to combat inflation.

“Whilst those policies may be painful currently, the actions of the Bank Of England and other central banks should help prevent any expectations of continued high inflation,” she said.

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