Financial Conduct Authority  

Rising cost of living will not be felt evenly, says FCA

Rising cost of living will not be felt evenly, says FCA
(Mykhailo Polenok/Dreamstime.com)

The Financial Conduct Authority is preparing for the impact of the cost of living crisis, which it says "will not be distributed evenly".

In a speech last week (May 31), Sheldon Mills, executive director of consumers and competition at the regulator, said the rising cost of living will present some challenges to the FCA’s efforts to improve financial inclusion.

“It is a perfect storm…The squeeze on household finances could push more people into vulnerability and the risks of financial exclusion are set to intensify,” he said.

"The impacts of these risks will not be distributed evenly."

Mills added that the City watchdog is preparing for the risks that may materialise in different economic scenarios, such as more persistent inflation and slower growth.

Inflation has been steadily rising since May last year, the last time it was under the Bank of England’s 2 per cent target.

“Households on higher income will likely be cushioned from the impacts, whereas other households will experience a squeeze on their finances and a few of them will be struggling,” Mills said.

“Consumers, especially those who have less savings, increasingly need to make painful trade-offs between managing immediate needs today and planning for tomorrow.”

Mills hit out at high street banks and building societies, saying while some deposit takers have passed on the bank rate increase to consumers quickly, others “seem to be taking longer”.

“We are seeing increasing disparity between the Bank’s base rate and the average variable cash ISAs rates offered by the largest high street banks and building societies, from around 0.2 per cent at the beginning of the year to around 0.7 per cent last week. 

“We expect firms to be transparent about this and to be able to explain the decision they take on their savings rates, to us and to their customers.”

He also warned that consumers are increasingly turning to speculative crypto tokens, drawn by the “promise of high returns” on risky investments.

Mills said his message to consumers thinking of investing is that they should never use credit cards to buy investments, as they could end up facing high fees and if money is lost on the investments the debt still needs to be paid back.

He added: “This underlines the importance of ensuring those who are on lower incomes can save and invest safely for their future.”

sally.hickey@ft.com