The cost-of-living crisis is fundamentally caused by higher inflation, and low wage growth. This is leaving many households with problems in real terms. The crisis has been exacerbated by short term factors, such as, the current ongoing Ukraine war.
But, the pressure on living standards has long term trends, such as low productivity growth and increased market power of firms.
Rising food prices are the biggest contributor to the alarming increase. Escalating prices are triggering changes in behaviour for many people. It attributes the unprecedented rise to a growing reliance on cash for households trying to manage budgets, often on a day-to-day basis. Bank of England have said borrowing on credit cards is growing at an annual rate of 12.5% on money and credit report for June, marking the fastest pace since November 2005. Across all consumer credit, borrowing is growing at an annual rate of 6.5%, the highest rate since May 2019.
Banks 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 cost continue to climb quicker than expected, or it becomes more difficult to borrow.
Bank of England has also warned that a recent surge in gas prices means inflation could rise above 13% by the end of the year where it becomes far higher than it had forecasted as recently in May.
According to the Office for National Statistics, about 89% of Adults in the UK reported an increase in their cost of living in July 2022.
Measures to support households as announced by the government. An estimated £ 37 billion has been used for support which had included:
A £400 off Energy bills for all households
£650 payments for households receiving means-testing benefits with additional payments of £300 for pensioners and
£150 for people receiving disability payments.
A £150 council Tax Rebate for households in council tax band A-D
A 5p cut to Fuel Duty
An increase in the threshold at which NICs Begins to be charged on Earnings.
Over 45% of households who pay energy bills have said they have found it very difficult to afford them in the latest period. The UK government announced an Energy Bills Rebate package to help households manage rising energy bills.
The Energy Bills Rebate will provide around 28 million households with an upfront discount on their bills worth £200. Energy suppliers will apply the discount to domestic electricity customers from October, with the Government meeting the costs. The discount will then be automatically recovered from people’s bills in equal £40 installments over the next five years. This will begin from 2023, when global wholesale gas prices are expected to come down.
Around 22% of the households that have travelled abroad recently have mentioned that they have experienced some form of disruption. Such as, 80% of those travelling on planes experienced delayed flights or extended and more frequent waiting times ; 50% of individuals reported longer queues in airports ; 25% pf individuals reported many flight cancellations; and 24% of individuals have said they experienced longer waits for luggage.
Rail Strikes have disrupted a lot of pupils’s plans. Around 13% of the people have said that they have experienced disruptions. The most common impacts were being unable to take part in leisure activities, spending more money on travel and being unable to work the hours they planned to travel for. Almost 29% of individuals have reported that the rail strikes had affected them in other ways as well as the common issues.
Climate Change impacts on the Future Cost of Living
Due to the heat waves, UK farmers reported that their yields had been knocked back by 20%, leading to not only lower incomes for farmers but greater prices for customers.
Extreme heat can be a serious health risk and there have been records of death in the UK during the heatwave days. The actions people have taken during the recent heatwave, by drinking plenty of fluids, closing curtains or blinds to keep indoor space cooler, stayed out of the sun during the certain hot temperature time, closing windows during the hottest times of the day and avoiding exercise during the hottest part of the day as well.
Frequent heatwaves, higher than before has affected the whole of the UK in the year when threats to national food and Fuel supply are hitting headlines and more importantly, driving up a dangerous cost of living crisis.
In this case, we expect households to save less and borrow more to protect themselves from rising inflation. This is a key reason why we think the UK will avoid a recession this year. However, our forecasts suggest GDP growth will average just 0.1% in each of the remaining three quarters of this year – so it would not take much of a rise in oil prices or a disruption in supply chains to push the UK into recession.
Worried about the cost of living crisis? here at Outsourced ACC we can manage your accounts to relieve the stress. Contact us today or book a meeting.