The Cost of Living Crisis to Worsen by 2024 in the UK

Soaring inflation, higher energy prices, and disrupted supply chains mean the average cost of living in the UK is rising. The indicator is unlikely to come down any time sooner.

Let’s review the situation briefly.

What is the Cost of Living Crisis?

The cost of living crisis refers to the scenario where common households cannot meet their necessities with their sources of income.

The crisis arises when common citizens are unable to afford necessities like putting food on the table, buying clothes, and paying rent, mortgage, and transportation costs to name a few.

Inflation is the main ingredient formulating this crisis globally. As the prices of basic household items increase, the total cost of living increases. If the income sources do not rise proportionally, the effect of inflation means diminishing purchasing power for citizens.

The Cost of Living Crisis in the UK

The official report from the Joseph Rowntree Foundation (JRF) states that around 14.5 million UK citizens are living below decent living means or in poverty.

It accounts for nearly 22% of the UK population currently. However, another study from the New Economics Foundation (NEF) shows even worse results.

The NEF predicts a staggering 42% of the UK population will be living below the defined poverty line or without decent living standards.

The definitions of living standards, poverty, and the cost of living may vary as each institute uses different metrics or inputs for measuring these indicators.

The report also suggests that the ongoing inflation and crisis are not going to end until at least the third quarter of 2024. The main trigger behind that is the inflation rate in the UK which is unlikely to be controlled in the next year or so.

The Bank of England’s target inflation rate is 2% in the country and various reports suggest that the current inflation rate of 10.7% would come to this target rate by the third quarter of 2024.

What are the Main Causes of the Cost of Living Crisis?

The ongoing conflict between Russia and Ukraine resulted in inflated energy costs for the UK and the EU zone particularly.

With no immediate solution to the Russia-Ukraine war, the energy crisis is unlikely to abate anytime sooner. However, other factors are also causing the cost of living crisis in the UK.

The supply chain costs have increased due to higher fuel costs and shortage of manpower too. Then, international logistics have been disrupted due to several conflicts including the Russia-Ukraine war.

Higher energy costs mean an expensive power supply. It results in an increased cost of production and costly local products.

It also means expensive transportation, production, and other cost factors have affected commodity prices. Thus, the most basic commodity items have become more expensive than earlier.

On the other hand, average wages and compensation packages from the government are not increasing as much as the cost of living in recent times.

We have seen more layoffs in different industries and many of them even shut down. Then, those surviving haven’t been able to increase the basic wage rates affecting the common citizens more than any other segment in society.

Inflation and the Cost of Living Crisis

The Consumer Price Index (CPI) measures the prices of over 700 items in the UK. The average change in the cost of these items is described as the inflation rate.

The current inflation rate of 10.1% in the UK has fallen from the previous few months but still remains at a forty-year high point.

All the major factors mentioned above plus the increasing interest rate from the Bank of England (currently 3.5%) play role in controlling the inflation rate.

The targeted rate of 2% is currently out of reach for the Bank of England. It is expected to come down to this point in 2024 if everything goes as planned and there are no further economic jolts to the country.

What is the Government Doing to Tackle the Crisis?

The UK government has taken a few steps to curb the crisis and ease the conditions of households.

• A cost of living payment of £650 for eight million households.
• An additional payment of £900 in the years 2023 and 2024 for these households.
• Issuing the cold weather payment of £25 to eligible households.
• Increasing the threshold National Insurance Contribution limit in line with the inflation rate.
• Issuing a lump sum of £300 in winter fuel payments to eligible pensioners.