Reasons for the cost of living crisis
Although the UK economy returned to growth in 2021 and avoided high levels of unemployment, inflation has reached levels not seen for decades. In October 2022, the CPI inflation rate reached 11.1 percent and is not expected to fall below the Bank of England target of two percent until at least 2024. While wages are currently growing, they are not keeping up with these rapid price rises, with regular pay falling by 2.6 percent in November 2022 when adjusted for inflation.The war in Ukraine has also exacerbated inflation woes, particularly in relation to food and energy, the two sectors driving much of the high inflation. Among the most concerning issues arising from the war in Ukraine, 60 percent of people in the UK ranked its impact on the cost of living as a top three issue, second only to the threat of nuclear war. Energy prices in particular are hitting UK households hard, especially following an increase to the energy price cap (a mechanism to limit what suppliers charge per unit of energy) in April 2022. With an additional hike in the price cap expected in October, UK households will feel even more pressure heading into winter. As of May 2022, approximately 67 percent of UK adults also thought Brexit was making living costs higher, with five percent believing it was making them lower.
Response to the crisis
In May 2022, the UK government announced a series of support packages to help deal with the crisis. All UK households will receive a 400 British pound energy bill grant in the Autumn, while around eight million low-income households will receive a 650 pound cost of living payment, to be paid in two installments. Further measures include an extra winter fuel payment of 350 pounds, an additional disability benefit payment of 150 pounds, as well as a 150 pound rebate on council tax that was announced in February 2022.Many, however, feel that the government's reaction to the crisis falls short, with almost half of UK adults saying they were "highly dissatisfied" by the government's response. Actions people in the UK are taking to save money in the meantime include turning lights and other electronic devices off to save money, as well as eating out less. In the long-term, people are putting off big purchases and generally spending less on items such as clothing.
