Soaring food prices, a falling pound, rising unemployment, and other bad economic news coming our way

Sadly, it appears as though things are going to get worse before they get better when it comes to our finances. We run through some of the most alarming developments.

As we reported last week, it feels like almost everything is becoming more expensive in 2025.

And the news is getting more dire with every passing day.

Unemployment is on the rise, food prices are soaring and the value of the pound is plummeting.

So, what does the rest of the year have in store for already suffering budgets?

1. Food bills could climb by 6%

With all of us needing to eat, rising supermarket prices are likely to be a key concern for almost every UK household in the months ahead.

In fact, the Bank of England has warned that food inflation in the UK could reach 5.5% by the end of the year.

Meanwhile, the British Retail Consortium puts this figure at a staggering 6%.

If this data is correct, these price rises would far outstrip earlier forecasts and put further pressure on households already struggling with the cost of living.

And frustratingly, analysis suggests Brits are feeling the pinch more than those in many other countries.

For example, food price inflation in the UK is currently more than 1.5% above that of the Eurozone.

Food price inflation jumps to 4.2%: 7 ways to fight back against soaring supermarket bills

2. Government borrowing: 27-year high

In another troubling development, last week also saw the cost of Government borrowing reach its highest level since 1998.

If we’d like to understand the reasons behind this, it’s essential to consider the importance of gilts.

Also known as Government bonds, gilts are effectively IOUs that the Government issues to fund its borrowing.

Interest rates on these gilts (referred to as yields) have now hit a 27-year high, which makes it more expensive for the Government to borrow.

What do gilts mean for mortgages?

When the economy comes under pressure, many of us want to know what this means for our home loans.

One of the biggest influences here is the gilt market, as the yields on UK Government bonds help determine the cost of borrowing for banks and, in turn, the rates they offer on mortgages.

When gilt yields climb, lenders’ costs go up and mortgage deals often become more expensive; when they fall, the opposite can happen.

3. A tumbling pound

To make matters worse, the situation appears no more promising on the international playing field, with last week proving disastrous for the strength of the pound.

Sterling slumped sharply last week, dropping by more than 1% against the US dollar to $1.33 on Tuesday. This marked the pound’s most significant one-day fall in nearly three months, making it the weakest performer among major global currencies.

But what does this mean for all of us?

Impact on savings and pensions

Investors are another group who often feel the misery of a weak pound.

Although you may not think of yourself as an investor, anyone with a pension falls into this category.

That’s because pension funds invest heavily in global markets, and currency swings directly affect the value of those investments.

When the pound is weak, you may find that the value of your portfolio suddenly becomes less attractive.

Holiday costs

When sterling is weak, the cost of going abroad can quickly soar – which is bad news for those hoping for some Winter sun or even just a weekend city break.

Unsurprisingly, a weaker pound equals less generous exchange rates with other currencies.

Although there isn't much we can do about exchange rates, you can minimise costs by avoiding common holiday rip-offs while abroad.

4. Unemployment to hit 5%?

In any economy, one of the key indicators of financial health is the number of people in work.

According to figures reported in The Telegraph, the rate of unemployment in the UK has risen from 4.3% before last year’s Budget to 4.7% in the current climate.

Even more alarmingly, experts predict this number could hit 5% during 2026.

While job losses are never welcome news for workers, they also represent a downturn in tax receipts for the Government during a time when things are already tough.

If the chancellor receives lower revenue from Income Tax and National Insurance contributions, she may be forced to look elsewhere to recoup the difference in her upcoming Budget, now set for 26 November.

And this will likely mean one thing... higher taxes for UK households.

In fact, The Telegraph reports that Reeves could face a £20 billion shortfall.

Have your say

How are you feeling about your finances in the months ahead? And how do you feel your finances compare to this time a year ago?

Do any of the items on this list particularly worry you?

Let us know your thoughts in the comments below.