The Money Brief #4 - 11th May

Last week, the Bank of England (BoE) gave us three possible scenarios for the UK economy. The worst case: inflation hitting 6% and rates rising to 5.25%. This week, the Prime Minister stood up and effectively confirmed it — warning publicly that the worst case is now looking the most likely. That's no longer a forecast. That's a warning from the top.

Several key signals over the last month support the Prime Minister's warning this week that inflation could breach 6%. Here's the picture building up:

Before the Iran war began in late February, inflation was expected to fall to around 2% this spring. That forecast is now completely off the table. CPI has already risen to 3.3% in March, and it's accelerating. The ONS reported that 67% of UK households said their cost of living increased in March — up from 56% just weeks earlier. Two out of three households are feeling it, and the data is only going to get worse — April's inflation figures, due on 21st May, will be the first to capture a full month of the war's impact.

The root cause is energy. Oil prices surged from around $70 a barrel before the conflict to peaks above $125 — the highest since the Ukraine crisis in 2022. UK wholesale gas prices jumped 75% in under a month. That doesn't just mean more expensive petrol — it means higher costs for every business that uses energy to manufacture, transport, or store goods. And 64% of UK firms now expect to raise their prices in the coming year as a direct result. At home, the picture isn't much better. The UK's energy price cap — the mechanism that limits what suppliers can charge you per unit of gas and electricity — is expected to rise again in July. That means the cost of heating your home, running a wash, charging your electric car, and keeping the lights on is heading in one direction. For households already stretching every pound, there's less and less buffer left.

The knock-on effects are already visible. The IMF slashed the UK's growth forecast from 1.3% to 0.8% — the steepest cut of any G7 nation. The Chancellor herself acknowledged the UK is "more exposed to energy price shocks than its counterparts." Food inflation is forecast to hit 9% by year end, up from 3% at the start of the year. Fertiliser costs for UK farmers have risen by 70%. And perhaps most concerning, the government's own assessment suggests prices will continue rising for at least eight months after the conflict ends — even in the best-case scenario.

This isn't a short-term spike. It's a repricing of the cost of living that could take well into 2027 to stabilise.

With the next BoE decision not due until June, there are other macro signals that tell a concerning story about how households are coping.

Consumer credit is growing at 8.9% annually. Credit card borrowing alone is rising above 12%. To put that in perspective — credit card interest rates sit around 25-35% APR. When borrowing on those terms is growing at 12% a year, it tells you something important: people aren't using credit cards for convenience anymore. They're using them to get through the month.

The wider picture backs this up. UK household debt now sits at 117.5% of disposable income. That means for every £1 the average household earns after tax, they owe £1.18. While this has been reducing since 2022, the country continues to collectively spend more than it earns — and the gap is being filled with borrowed money.

This matters for two reasons. First, if interest rates do rise — and the BoE's worst-case scenario from last week suggested they could reach 5.25% — the cost of servicing that debt gets heavier. Credit card minimum payments stay the same, but the interest compounds faster. Personal loans get more expensive to take out. Second, when households are this stretched, any unexpected cost — a car repair, a boiler breakdown, a redundancy — becomes a financial crisis rather than an inconvenience.

If you're carrying a credit card balance, it could be worth understanding exactly what interest rate you're paying and what your minimum payment is actually covering. In many cases, minimum payments barely touch the actual debt — most of it goes straight to interest. We'll cover this in more detail in this week's 'One Thing To Know' section below.

Two stories competing this week — and they're pulling in different directions.

The good news first: stock markets continued to climb. The S&P 500 gained around 2.4% over the week, up roughly 8% for the year so far and over 30% in the past 12 months. Any workplace or personal pension invested in global trackers has likely grown again this week. Earnings season has been strong, with 84% of S&P 500 companies beating expectations — the highest rate since 2021.

But beneath the surface, something else is happening. HSBC — one of the world's largest banks — reported weaker-than-expected profits and increased its impairment charges to $1.3 billion. That's money set aside for loans the bank expects won't be repaid. Barclays, NatWest, Lloyds, and Standard Chartered all fell heavily in the same week. When banks start setting aside more money for bad debt, it's a signal that they're preparing for tougher times ahead — more defaults, more missed payments, more financial stress among their customers.

Why does this matter to you? These are the same institutions holding your mortgage, your savings, and your current account. They're not in danger of collapsing — UK banks are well capitalised — but their caution tells you something about where they think the economy is heading. When your bank starts worrying about whether its customers can pay their debts, it's worth paying attention.

For pension holders, the headline remains broadly positive. Markets are up, earnings are strong, and long-term investors continue to benefit from staying the course. But the banking sector weakness is a reminder that not every part of the economy is sharing in that optimism.

A volatile but ultimately positive week for crypto. Bitcoin surged to $82,305 on Wednesday — its highest price since January — before pulling back to around $80,000 by Friday. It's currently sitting near $81,500, up around 2% for the week. Ethereum followed a similar pattern, touching $2,412 mid-week before settling around $2,350.

The key level everyone is watching is $80,000. Bitcoin has now tested this threshold multiple times — pushing above it, falling back, pushing above again. A sustained close above $80,000 would signal growing confidence. A failure to hold it could mean more choppy trading ahead. This is most accurately represented by the neutral data in the crypto fear and greed index (which measures investing sentiment in the cryptocurrency market).

The bullish case got a notable voice this week. At the Consensus 2026 conference in Miami, Fundstrat's Tom Lee — one of the most-watched analysts in crypto — stated that the bear market is effectively over if Bitcoin closes May above $76,000. He went further, predicting that within a decade, "half of the largest financial institutions in the world will be native digital." Whether you agree with that vision or not, the fact that institutional money continues to flow into crypto even during geopolitical uncertainty tells you something about where major players think this market is heading.

One development worth watching: a new report from Project Eleven warned that it may already be too late for Bitcoin's planned migration to quantum-resistant encryption. The report argues that quantum computing doesn't just threaten crypto — it threatens banking systems, military communications, and digital identities too. This is still a medium-term risk rather than an immediate one, but it's becoming harder to dismiss as theoretical.

Crypto assets are high-risk and largely unregulated in the UK. Values are extremely volatile — you could lose all the money you invest. This is not investment advice. Never invest more than you can afford to lose.

The squeeze on everyday life continued to tighten this week — from multiple directions at once.

Starting with jobs: the retail sector is shedding roles at pace. The British Retail Consortium reported that increases to employer National Insurance contributions and the minimum wage have added £6.5 billion to retailers' labour costs over the past year. The result? Vacancies are falling, hiring is slowing, and youth unemployment remains well above the national average. If you're under 25 and looking for work, the door is getting harder to push open — particularly in retail and hospitality where entry-level roles are disappearing fastest.

The cost of feeding your family is heading in one direction. Fertiliser costs for UK farmers have risen by 70% since the Iran war began, driven by the closure of the Strait of Hormuz — through which over 30% of the world's fertiliser supply normally passes. That cost doesn't stay on the farm. It passes through to food manufacturers, to supermarkets, and ultimately to your weekly shop. The Food and Drink Federation's warning that food inflation could reach 9% by December is looking more realistic by the week.

In energy news, reports emerged this week that E.ON and Ovo are in talks to merge — a deal that would create one of the UK's largest energy suppliers. What this means for your bills isn't clear yet, but any major consolidation in the energy market is worth watching closely, particularly with the price cap expected to rise again in July.

And a development that could affect how you pay for things: the FCA launched an investigation into Mastercard, Visa, and PayPal over potential anti-competitive practices linked to digital wallets and payment systems. If you've ever wondered why card payment fees seem to keep rising — this investigation may eventually provide some answers.

The thread running through all of this is the same: costs are rising, wages aren't keeping pace, and the systems ordinary people rely on — supermarkets, energy providers, payment networks — are all under pressure. That pressure flows downhill, and it lands on your household budget.

Earlier in this brief, we covered the headline: credit card borrowing in the UK is growing above 12% a year. But behind that number are millions of individual people, many of whom don't fully understand how much their credit card is actually costing them. So this week's takeaway is a practical one.

Most credit cards charge between 25% and 35% APR. If you're carrying a balance and only making minimum payments, here's what's actually happening: the majority of your payment is going straight to interest. The debt itself barely shrinks. Take a £2,000 balance at 25% APR — the kind of debt that builds up from one unexpected cost like a broken boiler, a car repair, or an annual insurance bill landing at the wrong time. If you only make minimum payments, it would take you over 12 years to clear — and you'd pay almost £4,000 in interest on top of the original £2,000 — That’s almost triple the original amount borrowed. And that's assuming you never add another penny to the balance. In reality, most people continue to use the card during the repayment period, adding new spending on top of existing debt — compounding what's owed and pushing that repayment timeline even further into the future.

It's generally recommended to use savings or an emergency fund for unexpected costs where possible. But if you do need to rely on credit, here are a few tips worth knowing:

If you're struggling with debt or unsure where to start, StepChange (stepchange.org) offers free, confidential debt advice, and MoneyHelper (moneyhelper.org.uk) provides independent guidance on managing your money. Both are completely free.

That's your brief for this week. The PM's inflation warning, credit card debt reaching record levels, banking sector pressure, bitcoin pushing at $80,000, and the real cost of what's in your wallet — all in one read.

We're now four editions in, and every week more people are finding The Money Brief. If you've been reading from the start, thank you — your support in these early weeks genuinely matters. If this is your first edition, welcome — you're in the right place.

Two things I'd ask of you this week:

Forward this to one person who could use it. A friend who's worried about their mortgage. A family member who doesn't understand what's happening with inflation. A colleague who mentioned their credit card bill is getting out of hand. One forward, one person — that's how this grows.

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And as always — if there's something you want me to cover, a question you've never known who to ask, or something about money that's always confused you — hit reply, send me an email. I read every message, and your questions will help to shape what I write.

Next week: UK Finance releases Q1 mortgage arrears and possessions data on Wednesday. With household debt at 117.5% of income and credit card borrowing surging, this will be the first real indicator of how UK homeowners are managing their debt repayments. We'll break it down. The week after, April's inflation data lands on 21st May — the first full month reflecting the Iran war's impact.

See you next Monday.

Ellis

themoneybrief.co.uk

The Money Brief. Not financial advice. The Money Brief provides news and commentary for informational purposes only. We are not FCA-regulated. Crypto and investments can go down as well as up. Always consult a qualified adviser before making financial decisions.