Every time you receive or spend money, there is an impact on the economy. Let us start by looking at the money you receive from work, savings, investments or other benefits. Before you get your pay, tax is deducted and paid to the Inland Revenue, which subsequently funds the Government.

There is also a goods and services tax known as VAT, which is added to most things we buy and paid to the Inland Revenue.

How much your money buys this year compared with last year is determined by the rate of inflation. If inflation is high, which means that the average price is rising faster than the pound in your pocket is worth, you will eventually buy less. If interest rates are high, which may go hand in hand with high inflation, people from overseas may want to invest more money in the UK. This in turn can increase the value of the pound in relation to other countries’ currency, which helps people in the UK to buy imported goods. At the same time, it makes it more difficult for exporting businesses to sell overseas, because their prices are already higher. This can result in people losing their jobs and having less money to spend.

If the pound falls in value, importing raw materials and other goods becomes more expensive, which has the effect of fuelling inflation.