Why is there a cost of living crisis?
There are several factors which have contributed to the cost of living crisis, including inflation, rising house prices, uncertainty around brexit, and extreme energy prices. These factors are all fuelled from the Covid 19 lockdowns, global politics, and the current war in Ukraine. Inflation is currently at a 40 year high of 11.1%, resulting in everyday items such as food and essential items increasing by significant amounts. Along with house prices becoming simply unaffordable for young people,
How can you survive the cost of living crisis?
There are many ways that you can cut down on costs to get through the current crisis. Martin Lewis gives 90 excellent ways in which you can reduce your costs. Some of these include reducing your energy usage by unplugging items when they're not being used, and being as efficient as possible when using electricity and gas, People are also being advised to reduce their outgoings by buying cheaper food brands and spending less on non-essential items.
The Office for National Statistics did a survey and found that those experiencing an increase in their cost of living, during the period 30 March to 19 June 2022, made the following common lifestyle changes:
spending less on non-essentials (57%, around 26 million people)
using less gas and electricity in their home (51%, around 24 million people)
cutting back on non-essential journeys in their vehicle (42%, around 19 million people)
Many public sectors such as Teachers, Nurses, Railway workers, and Postal Services are going on strike in order to get a pay rise to at least match the inflation rate. This is because any pay rise that is less than inflation, is essentially a pay cut, as their income can't buy them as much as it could before. This pay rise is imperative for them to be able to afford their bills, rent and food. If these workers are unsuccessful in getting a greater salary, then this could lead to mass chaos in society, especially those in the working class.
The Government has also tried to help, by implementing policies such as giving everyone at least £400 off their energy bills, with the aim to stop an immediate recession. They also announced the Energy Price Guarantee, which would have capped the average household’s energy bill at £2500 per year for at least one year.
Bill Diviney, ABN-Amro Group’s senior economist, wrote on 30 September:
“The plans to freeze annual energy bills for the average household at c.£2,500 and support for business energy bills may help the economy avoid a deep recession in the very near term. But this delays the pain rather than avoids it.”
When will it end?
Times are expected to get worse before they get better, but many experts are saying that the cost of living crisis will last until the end of 2024. The main barrier that people are waiting to be removed, is the currently high interest rates set by the Bank of England. With these interest rates it means that mortgages payment, and consequently rent, have increased massively. This has added further fuel to the fire, making people result to going into further debt to make sure they can survive. This will not only have short term effects on people, but will also devastate families in the long term. People will financially struggle to get back to where they once were, and their debt will weigh them down and not allowing them to progress in the world.
People will eventually start to be better off once the Bank of England reduces their interest rates, resulting in reduced mortgage and loan payments. Furthermore, creating more disposable income for families which will help increase spending in communities and kick start the economy. At the same time, inflation is expected to return to sustainable levels (around 2%), which help businesses to set the right prices and for people to plan their spending. Following this, people won't need to strike as much, as pay rises are not as necessary when inflation is kept to a low rate. This will also result in the economy being run better as people's daily lives won't be affected by the striking.