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All you need to now about the cost of living crisis
There is a lot of misinformation surrounding the cost of living crisis so we wanted to show our customers what is happening, but in simplified terms.
We all know the crisis is scary and causing many people to fall into poverty, but what are the cold hard facts?
Inflation has risen farther than ever before and wages are not increasing at the same rate.
How bad have things become?
According to the latest ONS report, rising food prices are the biggest contributor to the alarming increase. This time last year, inflation stood at 2%.
Escalating prices are triggering changes in behaviour for many people. For example, the Post Office reported record over-the-counter cash withdrawals of £801 million in July – an increase of 20% compared to this time last year. It attributes the unprecedented rise to a ‘growing reliance’ on cash for households trying to manage budgets, often on a day-to-day basis.
Borrowing on credit cards is growing at an annual rate of 12.5%, says the Bank of England’s Money and Credit Report for June, marking the fastest pace recorded since November 2005. Across all consumer credit, borrowing is growing at an annual rate of 6.5% – the highest rate since May 2019.
And the Bank’s separate Financial Stability Report warned that households with high levels of debt will find themselves ‘most exposed’ to further price rises of essential goods such as food and energy – especially if costs continue to climb quicker than expected, or it becomes more difficult to borrow.
Why have costs risen so drastically?
The Bank of England’s governor Andrew Bailey has said “the Russia shock is now the largest contributor to UK inflation”. But economists agree that there are many factors, including:
- energy bills, which have risen rapidly because of high oil and gas prices. They’re expected to increase sharply again from October when the price cap is next reviewed
- petrol and diesel prices, partly because the war in Ukraine has driven up the cost of crude oil. Prices recently fell from record levels but are expected to remain high
- food prices, as the war in Ukraine squeezes grain production and costs
- the cost of used cars has also gone up sharply
- significant increases in the costs of raw materials, household goods, and furniture and in the hospitality sector, including restaurants and hotels
- higher interest rates which are making mortgage payments more expensive for some homeowners
Not all prices behave the same way. The cost of some other goods and services have increased only slightly or stayed the same.
What about wages?
Pay increases for many people aren’t keeping up with rising prices.
Average wages, not including bonuses, rose by 4.7% in the year to June 2022.
But when you take inflation into account, the real value of that pay actually fell by 3% compared to 12 months ago.
Pay including bonuses was down 2.5%, when adjusted for inflation.
Unions say wages should reflect the cost of living – but the government argues this could push inflation even higher.
Who measures the UK’s inflation rate?
To come up with an inflation figure, the ONS keeps track of the prices of hundreds of everyday items. This is known as the “basket of goods”.
The basket is constantly updated. Tinned beans and sports bras were added this year, reflecting a rising interest in plant-based diets and exercise.
Each month’s inflation figure shows how much these prices have risen since the same date last year. This is known as the Consumer Prices Index (CPI).
Where do we come into things?
As a company we help people to source and secure government energy grants.
Energy has risen at an alarming rate in the last year.
It has risen higher than ever before and we are here to help you.
The first step is to get in touch with us by submitting an application.
We will help you through the cost of living crisis.
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