Just how bad is it?

THE recent rain lashing out of grey skies seems like the perfect metaphor for the gloomy financial times we are encountering.

Everywhere you look, there are signs the good times may be over - and that we are all going to have to tighten our belts.

Food and oil prices are soaring, the housing market has slowed, the pound is beginning to fall, and the Northern Rock crisis is still unresolved.

City of York Council is looking to make yet more cuts in its budget, music giant EMI is laying staff off, Rolls-Royce is in trouble, and teachers are threatening strike action over pay.

Even all-conquering Tesco appears to be feeling the squeeze. The supermarket giant saw sales during the six weeks to January 5 grow by 3.1 per cent - but that was some way short of the four per cent that had been widely expected.

So is the economic bubble about to burst? Just how bad will things get? How will it all affect you? And how can you make economies?

The state of the economy

FINANCIAL adviser Stuart Matheson predicts that finances could be tight for a while.

"People have been crying that we're all doomed for the past few years, but things are looking a bit difficult at the moment," says Mr Matheson, left, of Grosvenor Financial Consultants.

"It's almost like being at a party where you've been overindulging. Is the party about to be over or are we just about to be asked to turn the music down a bit?

"Personally, I think we will have a soft landing, but there's going to be some quite difficult times ahead."

There are a number of reasons for that, he says. Previously, inflation was kept down because we shipped goods from China and India, but as workers abroad ask for higher wages, prices rise for us.

As those workers earn more money, their appetite for more expensive food increases too, with demand reflected by price tags, Meanwhile, farmers, particularly in America, are being heavily subsidised to give over land once used for food crops to grow crops for fuel instead.

While inflation is being kept at 2.1 per cent, it is still higher than the target rate of two per cent, points out Mr Matheson, which makes him doubt whether interest rates will come down easily.

If interest rates fall, the pound will weaken too, but that will make our products more affordable to other countries.

A damaged economy will no doubt affect the housing market, with people reluctant to sell or buy a home.

Previously, that void was filled by the buy-to-let market, he says, but that has taken a bruising recently.

"If you view your property as your home, then so what?" he says. "It won't affect how your home looks or where you live. The problem is many people have been viewing their home as an investment instead and taking equity out of their house."

To make money stretch further, he recommends browsing advice sites such as www.moneysavingtips.com, to get the best deals on utility bills, mobile phones, internet packages on bank accounts.

However, it could all help the economy in the long run, he believes.

"It's bringing an element of sanity back to the market to stop us spending more than we are earning," he said.

"As a country we are spending more than we're earning and we can only do that for so long then eventually we have to start tightening the belt and starting spending within our earnings."

Making your money go further

DRAWING up a budget is the best way to start saving money, according to Kevin Butler, of York Citizens' Advice Bureau.

Look at your income, check your outgoings and find out what disposable income you have. Are there opportunities to increase your income? Maybe you could work extra hours, or take on a second job, or are you eligible for benefits you are not claiming?

Make sure essential payments, such as your mortgage, rent, utility bills and council tax, are paid first, because repercussions can be severe if you don't.

Next, check if there is anything you could sell, for example, something you don't need any more that could make money on eBay or at a car boot sale.

If you have a computer, use it to research savings online, such as cheaper insurance. Perhaps you could save on gas and electricity bills by getting them from the same supplier and paying by direct debit.

Sign up to supermarket loyalty card schemes, because points add up over the year.

If you don't need something there and then, try and save up for it, rather than pay interest on credit.

"There is an awful lot of help out there for people who may need help with budgeting," said Mr Butler. "CAB is here, but many organisations will be only too happy to help and many of these services are free."

How are families coping with rising prices?

Carol Watson

"IT'S funny you should ask that," says York mum-of-four Carol Watson, when The Press contacts her to ask whether she has noticed that things are getting harder. "We were just discussing this the other day.

"We're with npower, and they have just hiked their prices up again, and you do start to think: how are we going to manage?'"

Carol and her husband, Paul, who live in York, have four children: Liam, 11, Evie, three, Eleanor, two and baby Poppy, three months. Paul is a bricklayer and Carol a full-time mum.

But times are hard, Carol says. "Because my husband works, we are just above the line where we can get benefits. Child benefit is all the help we can get. But the cost of living is really going up, and Paul's wages aren't increasing at the same rate."

The family's weekly grocery bill is about £150 this year, Carol estimates - compared with about £90 or £100 a year ago.

It isn't only the cost of groceries that is on the rise. Everything seems to be more expensive this year.

"Gas and electricity has really gone up over the last year, and we're feeling the pressure," says Carol. "And the council tax is just under £1,000, which is an awful lot of money when you've got little dependants.

"You do the weekly shopping, and you think How do toddlers eat that much? How can nappies and a bottle of milk cost that much?"

So difficult are the family's finances that Carol now feels real pressure on her to return to work - she used to work at The Retreat, in York, as a support worker.

"You want to be at home in the early years with your baby," she said. "I didn't have children so I could put them in childcare and go out to work. I wanted to enjoy them. But things are so much tighter than last year that you do feel he pressure to go back to work.

"You want to work and earn for your family - but I would have to work nightshifts because I don't want to pay childcare."

Like most families, Carol dreams of winning the lottery. "But who has a spare £1 for a lottery ticket?" she jokes.

In the meantime, belts have been tightened.

"We have to prioritise," Carol says. "We pay the rent, pay the utilities and the luxuries go out of the window."

That entails finding activities for the children that don't cost money - such as going to local parks. Carol will not pay for meals out - even buying a sandwich costs a fortune, she says, so if the family have a rare day out to the seaside, she packs lunches.

"And if Paul buys a box of chocolates or a bunch of flowers for me, I'm like: can we afford this?'"

She and her husband's one treat of the year is a meal out together on Valentine's Day, she says. The rest of the year she won't eat out. "I'd rather ensure that the children are catered for. Paul and I will retire one day and we'll treat ourselves then."

One of her biggest regrets is that she can't even afford to put any money aside for the children for a rainy day'.

"I've got a savings account," she says. "But there's nothing in it."

Leeann Branton

EVERYTHING is more expensive than 12 months ago, according to York mum-of-three Leeaan Branton.

In fact, things are so tight now that she and her partner, Leigh, have had to switch their gas and electricity to a meter supply, to restrict how much the family uses. And the TV licence and telephone bills she pays by saving up on a savings card.

Leeann's two daughters - Chloe, ten, and Lucy, eight - won The Press Child of the Year award last year. Lucy won for her courage in facing up to life while suffering from cerebral palsy and epilepsy, while Chloe won for her help in looking after her little sister.

Cain, the youngest child at three, is just as special as the other two, however, Leeann stresses.

Leigh is Lucy's full-time carer, and Leeann is studying at York College for a BTech in children's learning and development. She hopes to find work as a teaching assistant for children with special needs.

For now, however, the family is reliant on benefits and finances are tight.

Things were hard enough last year, Leeann says, but nothing like this year. "It was a struggle in January last year, but at least then I could pay for the TV licence outright."

The average weekly shop is £20 to £30 more than it was a year ago, Leeann reckons. "You find yourself standing there working out which is cheaper, the chicken or the joint of beef? And if it is the beef, how long will it last?"

Meanwhile, with fuel prices being so high, use of the family car has been cut down to the minimum. And while Leeann tries to ensure the children are properly clothed, she and Leigh tend to walk around with holes in their shoes.

"I think a lot of people are just skint," Leeann says. "We don't go out socialising, we don't drink, we don't smoke. Leigh used to smoke, but he doesn't any more because he can't afford to."

There is no money for treats, such as taking Chloe to a theme park, or a family visit to the cinema - and Leeann even had to borrow money from her mother to tide the family over.

For all that, she remains stoical. "Things are getting harder," she says. "But you manage and make the most of it."