The rising cost of living in the UK is hitting hard, with utility bills being a major factor in driving up costs for consumers. As we head deeper into 2022, households across the country are feeling the pinch, especially with the increase in energy prices leading to a surge in heating bills.
The Office for National Statistics (ONS) has reported that inflation in the UK has reached a ten-year high of 5.1% in November 2021, with energy prices being a significant contributor to the rise. This is causing immense pressure on households, who are already struggling to make ends meet due to the economic aftermath of the global health crisis and now Russia’s recent invasion of Ukraine.
Factors That Contributed to the Cost of Living Crisis
There are a number of factors that have contributed to increasing costs all around the world.
Global Health Crisis
The global health crisis was, of course, a major factor when it comes to today’s cost of living crisis. With so many people out of work for a number of years, governments across the world bled money in an effort to keep households afloat. This included printing new money, handing out stimulus checks to get people spending again and borrowing billions upon billions of money they did not have. This was always bound to recreate an economic downturn at some point and here we are.
The pandemic also changed the way we think about the world and how we work as a society. Whilst many lost their jobs, others decided to quit and take up jobs where they could work from home. As a result, there an apparent lack of workers across a multitude of industries across the world.
The conflict between Russia and Ukraine may seem distant, but its impact has hit much closer to home. As one of the largest producers of oil and natural gas, Russia’s actions have caused energy prices to skyrocket. The oil and gas markets are inherently speculative, causing traders to fear a global shortage, resulting in record-high prices in the first half of 2022.
In response to the invasion, industrial democracies have imposed various sanctions on Russia. These measures include financial penalties and export controls to limit Russia’s ability to advance in the next generation of energy production. The European Union, United States, and other Western partners have even gone so far as to ban some Russian energy imports outright.
To further limit Russia’s impact on the energy market, several G7 countries and other industrial democracies placed a cap on the price they would pay for Russian oil. The cap is set at $60 per barrel and not only affects the import of oil into these countries but also has a global impact since a significant portion of the oil market is insured by Western financial companies. As the conflict in Ukraine continues, the impact of Russia’s actions will continue to be felt in the energy market.
Bank of England Raises Interest Rates & Inflation
Adding to the energy market issues, the cost of living crisis has been further compounded by the recent decision of the Bank of England to increase interest rates to their highest level since 2008. While the move is aimed at tackling inflation, it also means that households with variable-rate mortgages will see their monthly payments increase, putting further pressure on family finances.
The rising cost of groceries is also contributing to the squeeze on household budgets. According to the British Retail Consortium, food prices rose by 4.2% in December 2021, largely due to supply chain disruptions caused by the pandemic and the war in Ukraine. On top of this, consumers are grappling with the increasing cost of petrol, with the average price per litre increasing by more than 30p in the past year.
As a result, many households are having to make tough choices about where to cut back, with some even having to decide between heating their homes or putting food on the table. For those on low incomes or living in poverty, the situation is particularly dire, with many struggling to cope with the rising cost of living. While the government has pledged to provide support through schemes like the Winter Fuel Payment, it remains to be seen whether this will be enough to alleviate the pressure on families across the UK.
It’s getting harder and harder to make ends meet in the UK, with prices rising at an alarming rate. The consumer price index hit its highest level since 2012 in November, well above the Bank of England’s target of 2%. The Bank of England’s response to inflation was to increase interest rates, but this could worsen the problem by making borrowing more expensive for consumers.
Supply Chain Disruptions
One of the biggest contributors to the rising cost of living is the price of groceries, which keeps going up every month. Meat and dairy products, as well as fruit and vegetables, have seen the biggest increases, largely due to supply chain disruptions caused by the pandemic and global demand. On top of this, utility bills are also soaring, with energy bills rising by an average of 14% in the past year alone.
All of these factors are taking a toll on UK households, especially those on a tight budget. The government has promised to provide some relief in the form of fuel subsidies and tax breaks, but many experts are calling for more comprehensive measures, such as a minimum wage increase or a stronger welfare system.
The high cost of living is not just impacting individuals, but the wider economy as well. Businesses are struggling to stay afloat due to declining consumer spending, and there are concerns that the UK could be headed for a period of economic stagnation.
Brexit has also had a significant impact on the supply of food in the UK, with HGV driver shortages causing delivery delays and supermarket shelves to go empty. The rising cost of fuel has also contributed to the overall increase in the cost of living, as transportation costs for goods are passed on to consumers.
As the UK heads into 2023, it remains to be seen whether the government will take more radical action to address the problem of rising costs, or whether families will continue to struggle to make ends meet. Whatever the solution, it’s clear that this issue will be in the headlines for some time to come.
Saving Money During the Cost of Living Crisis
So, what can we do to save money in the midst of this crisis? There are a few steps we can take, such as being mindful of our energy usage, comparing prices and switching providers, and seeking out deals and discounts. It’s important to take action to save money wherever possible, to ease the financial burden on ourselves and our households.
As the cost of living continues to rise in the UK, many households are feeling the squeeze on their finances. From increasing utility bills to more expensive grocery shopping, it seems like every expense is going up. In response, consumers are searching for ways to save money and manage their finances more effectively. Here are some tips to help reduce household expenses and cope with the current economic climate:
Setting a Monthly Budget
First and foremost, it’s essential to create a monthly budget to keep track of your spending and prioritise necessary expenses. This will help you stay on top of your finances and avoid overspending.
Another effective way to save money is by switching to a cheaper energy supplier. Comparing energy suppliers can help you find the best deals and save money on your bills. You can also reduce your energy usage by making simple changes such as turning off lights when not in use or turning down the thermostat.
Utilising Discounts, Vouchers & Coupons
Taking advantage of discounts, vouchers, and coupons is another great way to save money on grocery shopping. Planning meals in advance can also help you reduce food waste and save money on groceries. Shopping at discount supermarkets can also help you save money on your grocery bill. Impulse buying is a major culprit of overspending, so avoiding it can help you stick to your budget.
Buying Second-Hand Items
Buying second-hand items can also help you save money on clothes, furniture, and other household items. If you have multiple debts, consolidating them through a loan or credit card with a lower interest rate can help reduce the cost of borrowing. Lastly, seeking financial advice from a professional can help you better manage your finances and cope with economic challenges.
While these tips won’t solve all of the financial challenges faced by UK households, they can certainly help reduce expenses and make the most of available resources. The pandemic has only made the situation worse, leading to more people struggling to make ends meet. However, there are steps that individuals and households can take to help alleviate some of the financial burden.
Ultimately, a multifaceted approach is needed to address these financial challenges. It will require the cooperation and effort of individuals, businesses, and government to make meaningful progress towards a more financially stable future for all. The government can play a critical role in providing additional financial support to those in need and implementing policies that address the underlying causes of the issue. By working together, we can build a more prosperous and financially stable future for everyone in the UK.